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2017

Simplexity: Plain Language and the Tax LawJoshua D. BlankNew York University School of Law

Leigh OsofskyUniversity of Miami School of Law, losofsky@law.miami.edu

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Recommended CitationJoshua D. Blank and Leigh Osofsky, Simplexity: Plain Language and the Tax Law, 66 Emory L.J. 189 (2017).

SIMPLEXITY: PLAIN LANGUAGE AND THE TAX LAW

Joshua D. Blank*Leigh Osofsky**

ABSTRACT

In recent years, federal government agencies have increasingly attemptedto use plain language in written communications with the public. The PlainWriting Act of 2010, for instance, requires agencies to incorporate "clear andsimple" explanations of rules and regulations into their official publications.In the tax context, as part of its "customer service" mission, the InternalRevenue Service bears a "duty to explain" the tax law to hundreds of millionsof taxpayers who file tax returns each year. Proponents of the plain languagemovement have heralded this form of communication as leading to simplicityin tax compliance, more equitable access to federal programs, and increasedopen government.

This Article casts plain language efforts in a different light. As we argue,rather than achieving simplicity, which would involve reform of the underlyinglaw, the use ofplain language to describe complex legal rules and regulationsoften yields "simplexity. " As we define it, simplexity occurs when thegovernment presents clear and simple explanations of the law withouthighlighting its underlying complexity or reducing this complexity throughformal legal changes. We show that in its numerous taxpayer publications, theIRS frequently uses plain language to transform complex, often ambiguous taxlaw into seemingly simple statements that: (1) present contested tax law asclear tax rules, (2) add administrative gloss to the tax law, and (3) fail to fullyexplain the tax law, including possible exceptions. Sometimes these plain

. Professor of Tax Law, Vice Dean for Technology-Enhanced Education and Faculty Director of theGraduate Tax Program, New York University School of Law.

Professor of Law, University of Miami School of Law. We are grateful to Joseph Bankman, AndrewBlair-Stanek, Yariv Brauner, Kathleen DeLaney Thomas, Michael Froomkin, Jacob Goldin, Itai Grinberg,Kristin Hickman, David Kamin, Sarah Lawsky, Omri Marian, Alex Raskolnikov, Joel Slemrod, andparticipants in colloquia at Columbia Law School, University of Florida Levin College of Law, Tulane LawSchool, UC Irvine School of Law, and in presentations at the 2015 National Tax Association AnnualConference, 2015 Junior Tax Scholars Workshop, and the 2015 Law and Society Association Annual Meetingfor thoughtful suggestions and comments on prior drafts. All errors are our own.

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language explanations benefit the government; at other times, they benefittaxpayers.

Having introduced the concept of simplexity to the legal literature, weshow how the IRS' use of simplexity poses a trade-off between representingthe tax law accurately and making it understandable to the public. We offerapproaches for preserving some of the benefits of simplexity while alsoresponding to some of its drawbacks. We also forecast the likely emergence ofsimplexity in potential future tax compliance measures, such as government-prepared tax returns, interactive tax return filing, and increased third-partyreporting.

IN T R O D U C T IO N .............................................................................................. 19 1I. THE DUTY TO EXPLAIN THE TAX LAW ............................................... 196

A. The IRS as Customer Service Organization .............................. 197B. Explanation Approaches ........................................................... 199C. In Praise of Plain Language ...................................................... 202

II. SIMPLEXITY IN IRS PUBLICATIONS .................................................... 204A . W hat Is Sim plexity ? ................................................................... 205B. Categories and Examples .......................................................... 207

1. Presenting Contested Tax Law as Clear Tax Rules ............. 207a. Deductibility of Ordinary and Necessary Business

E xp en ses ....................................................................... 2 0 7b. Deductibility of Home Mortgage Refinancing Points ... 210c. Tax Characterization of Leveraged Leases .................. 212

2. Adding Administrative Gloss to the Tax Law ...................... 214a. Capitalization of Improvements .................................... 214b. Exclusion of Gain from Sale of Principal Residence .... 217c. Multiple Individual Retirement Account Rollovers ....... 219

3. Failing to Fully Explain the Tax Law .................................. 221a. B artering D eductions ................................................... 221b. Early Individual Retirement Account Distributions ..... 224c. Characterization ofActivity as Profit-Seeking ............. 226

C. Taxpayer Exposure to Simplexity .............................................. 228III. IS SJM PLEXITY SOUND ? ................................. .. . .. . .. . .. .. . .. . .. . .. .. . .. . .. . .. . .. . 234

A . B en efi ts ...................................................................................... 2 3 41. Tax Law in Plain Language ................................................ 2342. Visibility into the IRS's Views of the Tax Law ..................... 2353. Administration and Revenue Benefits .................................. 236

B . T h rea ts ....................................................................................... 2 3 7

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1. Reduced Tax Transparency ................................................. 2372. Unequal Benefits and Burdens ............................................ 2423. Inadequacy ofAdministrative Law to Police Threats .......... 245

C . The Trade-Off ............................................................................ 250D . P otential R esp onses ................................................................... 251

1. R ed-F lagg ing ....................................................................... 2522. Review of IRS Publications ................................................. 2563. Structural R eform ................................................................ 258

E. The Future of Tax Administration ............................................. 259C O N C L U SIO N .................................................................................................. 2 6 3

INTRODUCTION

Imagine it is April 15th, "Tax Day," and as the sole owner of a local pizzashop, you are racing to complete your annual tax return before the U.S. PostOffice closes. Specifically, you are trying to decide whether you can claim atax deduction for a $6000 expense you paid last winter to fix your restaurant'scopper piping, which was damaged as a result of a flood. (Your expenses forplumbing are usually around $3000 annually.) You understand from the ownerof the barbecue restaurant next door that his accountant recently told him hecould not deduct expenses for "improvements."' Now imagine that you readthe following two statements, the first of which is from Treasury regulationsand the second of which is from an IRS publication regarding businessexpenses:

Statement 1: "Requirement to capitalize amounts paid for improvements.Except as provided in paragraph (h) or paragraph (n) of thissection or under § 1.263(a)-l(f), a taxpayer generally mustcapitalize the related amounts (as defined in paragraph (g)(3)of this section) paid to improve a unit of property owned bythe taxpayer."2

Statement 2: "Improvements. Improvements are generally majorexpenditures. Some examples are new electric wiring, a newroof, a new floor, new plumbing, bricking up windows tostrengthen a wall, and lighting improvements."3

1 I.R.C. § 263(a)(1) (2012).

2 Treas. Reg. § 1.263(a) 3(d) (as amended in 2014).3 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. No. 535, BUSINESS EXPENSES 3 (2016).

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As you struggle to make a decision about whether to deduct the copper pipingexpense, which of these two statements is more helpful to you?

If you are like most people, you will most likely find Statement 2 to be farmore helpful than Statement 1. After reading Statement 2, you may decide thatyour expense was a "major expenditure"-it was double your usual expense-and, as a result, you cannot claim the deduction. This conclusion, however, isnot necessarily correct. The "major expenditure" standard in Statement 2, fromthe IRS publication,4 does not appear anywhere in the Internal Revenue Codeor Treasury regulations. Further, the provisions that Statement 1, from theTreasury regulations,5 references contain specific examples that providesupport for allowing you to deduct the expense immediately.6 WhileStatement 2 may help you to make a decision regarding the deduction, thisdecision may not be consistent with the tax law.

As this hypothetical illustrates, the IRS often attempts to explain tax lawthat consists of complex, ambiguous statutory rules and administrativeregulations using terms that are "[c]lear and simple"7 to most taxpayers. Whilethe IRS assesses and collects over three trillion dollars in tax liability annuallyas a tax enforcement agency,8 the agency also assists hundreds of millions oftaxpayers each year9 in its dual role as a customer service organization.'0 Inthis latter capacity, the IRS bears a duty to explain the tax law to taxpayers,"l

and taxpayers, likewise, possess the right to be informed by the IRS about thetax law. 12 Further, as a result of the implementation of the Plain Writing Act of2010, spearheaded by Cass Sunstein in his role as Administrator of the Office

4 Id.5 Treas. Reg. § 1.263(a) 3(d).6 See, e.g., Treas. Reg. § 1.263(a) 3(k)(7) ex. 23 (as amended in 2014).7 OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, MEMORANDUM NO. M-11-15, FINAL

GUIDANCE ON IMPLEMENTING THE PLAIN WRITING ACT OF 2010 (2013).8 See The Agency, Its Mission and Statutory Authority, INTERNAL REVENUE SERV., https://www.irs.gov/

uac/the-agency-its-mission-and-statutory -authority (last updated July 27, 2016).9 NAT'L TAXPAYER ADVOCATE, 1 ANNUAL REPORT TO CONGRESS 5 (2014), http://www.

TaxpayerAdvocate.irs.gov/2014AnnualReport.10 See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 1205,

112 Star. 685, 722 23 (1998); see also Leandra Lederman, Tax Compliance and the Reformed IRS, 51 KAN. L.REV. 971, 980 (2003) (describing congressional efforts to make the IRS more "'customer'-fiendly").

11 See, e.g., I.R.S. News Release IR-98-59, New IRS Mission Statement Emphasizes Taxpayer Service

(Sept. 24, 1998), https://www.irs.gov/pub/irs-news/ir-98-59.pdf; Fact Sheet FS-2015-3, Taxpayer Bill ofRights #1, The Right to Be Informed, INTERNAL REVENUE SERV. [hereinafter BILL OF RIGHTS],https://www.irs.gov/uac/newsroom/taxpayer-bill-of-ights-number-l-the-night-to-be-informed (last updatedJan. 2015); see also intra Part II.A.

12 See Plain Writing Act of 2010, Pub. L. No. 111-274, § 2, 124 Stat. 2861, 2861 (2010).

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of Information and Regulatory Affairs,3 the IRS must use plain language toconvey the tax law in "easily understandable language on all of [its] forms,publications, documents and notices."4 Sunstein and others have heraldedinitiatives like the Plain Writing Act as increasing "simplicity," 15 which theyargue enables taxpayers to self-assess their own tax liability, ensures equalaccess to information about government programs and services, and increasesgovernment transparency.16 As Sunstein has noted, the introduction of plainlanguage in government communications should "promote clarity, because it isdesigned to ensure that when government communicates with citizens, it doesso in a way that people can easily understand."17

This Article casts plain language efforts in a different light. As we argue,rather than achieving simplicity, which would involve reform of the underlyinglaw,'8 the use of plain language to describe complex legal rules and regulationsoften yields "simplexity." As we define it, simplexity occurs when thegovernment presents clear and simple explanations of the law withouthighlighting its underlying complexity or reducing this complexity throughformal legal changes. Outside of law, simplexity is a concept that has emergedin recent years in diverse fields, including chemistry19 and biology,20 cognitivepsychology,2 1 literary analysis,22 and even computer-animated feature films.23

We show that in its numerous taxpayer publications, the IRS frequently usesplain language to transform complex, often ambiguous tax law into seeminglysimple statements that: (1) present contested tax law as clear tax rules, (2) add

13 CASS R. SUNSTEIN, SIMPLER: THE FUTURE OF GOVERNMENT 185 (2013).14 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. NO. 5206, PLAIN WRITING ACT

COMPLIANCE REPORT 2 (2015).15 SUNSTEIN, supra note 13, at 185 (2013); see also OFFICE OF MGMT. & BUDGET, supra note 7.

16 See infra Part II.C.

17 SUNSTEIN, supra note 13, at 185.18 See OFFICE OF THE SEC'Y, DEP'T OF TREASURY, 1 TAx REFORM FOR FAIRNESS, SIMPLICITY, AND

ECONOMIC GROWTH 16 (1984); inra notes 96 101 and accompanying text.19 See, e.g., Phillippe Compain, Le part de la simplexite: Le simple et le complexe en synthese organique

[The Challenge of Simplexity: The Simple and the Complex in Organic Synthesis], 265 L'ACTUALITECHIMIQUE, Apr. May 2003, at 129, 129.

20 See, e.g., JEFFREY KLUGER, SIMPLEXITY: WHY SIMPLE THINGS BECOME COMPLEX (AND HowCOMPLEX THINGS CAN BE MADE SIMPLE) (2008).

21 Serge Gelalian, Is Modeling the Primary Activity of the Human Brain?, 3 PSYCHOL. RES. 175, 184(2013).

22 See, e.g., ALAIN BERTHOZ, SIMPLEXITY: SIMPLIFYING PRINCIPLES FOR A COMPLEX WORLD 208

(Giselle Weiss trans. 2012).23 TIM HAUSER, THE ART OF UP 18 (2009) (quoting Pixar animator Ricky Nierva as stating,

"[Simplexity] is the art of simplifying an image down to its essence .... 'Simplexity' is about selective

detail").

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administrative gloss to the tax law, and (3) fail to fully explain the tax law,including possible exceptions. We refer to these descriptions as "IRSsimplifications." Sometimes IRS simplifications benefit the government; atother times, they benefit taxpayers. In either case, simplexity offers a powerfulplatform from which the government can shape taxpayers' perceptions andunderstanding of the tax law.

Having introduced the concept of simplexity, we explain how the IRS's useof simplexity poses a trade-off between representing the tax law accurately andmaking it understandable to the public. There is no single way this trade-offshould be resolved. Rather, resolving the trade-off will depend on valuejudgments as to whether the right balance of accuracy and understandabilityhas been reached in a given case. The trade-off is animated by offsettingbenefits and costs from simplexity. In particular, while simplexity offers anumber of potential tax administration benefits, it can also threaten vital valuesof democratic governance and fairness.24 On the one hand, IRS simplificationsexplain otherwise complex tax law in terms that are comprehensible for a largeswath of taxpayers. They also reveal the IRS's own interpretation of the taxlaw and its likely auditing or litigating position in the event of a taxcontroversy. And where taxpayers respond to government-favorable IRSsimplifications by refraining from claiming aggressive tax positions, theyenable the IRS to increase collection of tax revenue. On the other hand, bydescribing the tax law in seemingly straightforward terms, IRS simplificationscan have the unintended effect of obscuring individuals' knowledge of theunderlying tax law, as it exists in the Internal Revenue Code, Treasuryregulations, and case law. In addition, IRS simplifications can impose unequalbenefits and burdens on different types of taxpayers. Sophisticated taxpayerspossess the ability to reject IRS simplifications that benefit the government,while all taxpayers, sophisticated and unsophisticated, will follow IRSsimplifications that favor taxpayers. Further, administrative law does not offeran adequate solution to the problems posed by IRS simplifications, leavingsignificant threats of opacity and inequity largely unchecked.25

This Article does not contend that the IRS should abandon plain language.Rather, we offer several strategies for maximizing the tax administration andcompliance benefits of simplexity while minimizing its drawbacks.26 First, we

24 See infra Parts III.A and III.B.

25 Id.

26 See infra Part IIID.

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explore the possibility of mandating that the IRS either annotate or red-flag itsown simplifications in IRS publications.27 As we demonstrate, in addition toreducing opacity, these methods still allow the IRS to speak in plain languageto taxpayers and set forth its own views, and even allow the IRS to continue tomaximize revenue collection to the extent that conservative taxpayers followthe IRS's positions. Next, we discuss how the IRS may rely on institutions orinterest groups outside of the IRS, such as the Government AccountabilityOffice, or the tax law bar, to review IRS simplifications and accompanyingannotations and red-flagging.28 Last, we consider potential structural reform ofthe IRS, including the creation of an independent taxpayer serviceorganization.29

Finally, we forecast the likely emergence of simplexity in the future of taxadministration.30 Tax scholars and policymakers have made a variety ofsuggestions for how tax administration can and should change in the comingdecades. For example, scholars and policymakers have suggested that thegovernment should prepare individuals' tax returns (using information italready possesses),31 develop interactive tax return filing programs,32 andcontinue to expand the role of third party information reporting,33 allsuggestions that have begun to be implemented in the tax system in varyingdegrees. 34 Simplexity is likely to arise in each of these innovations. As a result,our suggestions for minimizing the threats while maintaining the benefits ofsimplexity will become increasingly important.

The remainder of this Article proceeds as follows. Part I discusses theIRS's customer service obligations, including its duty to explain the tax law,

27 See infra Part III.D. 1.

28 See infra Part III.D.2.

29 See infra Part III.D.3.

30 See infra Part III.E.

31 See, e.g., Joseph Bankman, Simple Filingfor Average Citizens: The California ReadyReturn, 107 TAX

NOTES 1431 (2005); AUSTAN GoOLSBEE, BROOKINGS INST., THE 'SIMPLE RETURN': REDUCING AMERICA'STAX BURDEN THROUGH RETURN-FREE FILING (2006); Rodney P. Mock & Nancy E. Shurtz, The TurboTaxDefense, 15 FLA. TAx REV. 443, 528 29 (2014); Dennis J. Ventry Jr., Americans Don 'tHate Taxes, They HatePaying Taxes, 44 U.B.C. L. REv. 835, 842 (2011).

32 See, e.g., Joseph Bankman, Clifford Nass & Joel Slemrod, Using the "Smart Return" to Reduce TaxEvasion (Stanford Pub. Law, Working Paper No. 2578432, 2015), ht://papers.ssm.com/sol3/papers.cfm?abstractid-2578432; Mock & Shurtz, supra note 31; Kathleen DeLaney Thomas, User-Friendly Taxpaying,92 IND. LJ. (forthcoming).

33 For a list of current information-reporting requirements, see Information Return Reporting, INTERNALREVENUE SERV., https://www.irs.gov/businesses/small-businesses-self-employed/infoyrmation-retum-reporting

(last updated May 17, 2016).31 See infra Part III.E.

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and examines the rationale underlying the plain language movement in the taxcontext. Part II introduces the concept of simplexity to the legal literature andoffers examples of IRS simplifications that fall into several commoncategories. Part III examines the benefits and drawbacks of simplexity, offerssuggestions for reform, examines potential simplexity in future taxadministration initiatives, and is followed by the Conclusion.

I. THE DUTY TO EXPLAIN THE TAx LAW

Among its core functions, the IRS seeks to promote voluntary compliancewith the tax law, reviews hundreds of millions of tax returns, and assesses andcollects over three trillion dollars in tax revenue annually.35 In recent years, theIRS has faced criticism regarding its exercise of tax enforcement discretion,such as that the agency fails to enforce the tax law in certain cases (e.g.,refraining from taxing employees on frequent flyer miles accumulated throughbusiness travel),36 under-enforces the tax law (e.g., declining to audit largepartnerships and small cash businesses),37 and enters into secret deals withtaxpayers (e.g., advance pricing agreements that enable multinationalcorporations to reduce their global tax liability by billions of dollars).38 Inresponse, several scholars have called for new institutional oversight andjudicial review of the IRS's exercise of discretion in enforcing the tax law.39

In addition to its tax enforcement obligations, the IRS is also required toprovide "customer service"40 assistance to taxpayers. The IRS bears anaffirmative duty to assist both individuals and businesses in complying withtheir tax calculation and payment obligations, specifically by explaining the taxlaw to taxpayers in plain language that is clear and easy to understand. In

35 See The Agency, Its Mission and Statutory Authority, supra note 8.

36 See Lawrence Zelenak, Custom and the Rule of Law in the Administration of the Income Tax, 62 DUKE

LJ. 829, 831 (2012).37 See, e.g., Joseph Bankman, Eight Truths About Collecting Taxes from the Cash Economy, 117 TAX

NoTEs 506, 514 (2007); Amy S. Elliott, Audit Proof? How Hedge Funds, PE Funds, and PTPs Escape theIRS, 136 TAXNoTEs 351, 351 52 (2012).

38 See, e.g., Lee A. Sheppard, Draft Senate Finance APA Report Shows Incompetent IRS, 2005 TAXNoTEs TODAY, at 119-1; see also Leigh Osofsky, Some Realism About Responsive Tax Administration, 66 TAXL. REV. 121 (2012).

39 See, e.g., Samuel D. Brunson, Watching the Watchers: Preventing IR.S. Abuse of the Tax System, 14FLA. TAX REV. 223, 254 55 (2013); Richard C. Stark, Hartman E. Blanchard Jr. & Saul Mezei, Consistency,

Sunshine, Privacy, Secret Law, and theAPA Program, 2011 TAx NoTEs TODAY 26-3; Zelenak, supra note 36,at 851 53.

40 Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 1205, 112Stat. 685, 722 23 (1998).

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comparison with their extensive focus on the IRS's role as a tax enforcementorganization, policymakers, tax scholars, and other commentators havedevoted far less attention to the IRS's role as a customer service organization,including the IRS's approaches to fulfilling its duty to explain the tax law.41

This Part discusses the IRS's customer service obligations, reviews theagency's multiple approaches to explaining the tax law to taxpayers, andconsiders the rationale for imposing a duty to explain upon the IRS.

A. The IRS as Customer Service Organization

In its customer service capacity, the IRS has a central duty to explain thetax law to taxpayers. As the IRS describes it, its mission is to "help the largemajority of compliant taxpayers with the tax law, while ensuring that theminority who are unwilling to comply pay their fair share."42 Notably, thismission statement references helping taxpayers comply before referencing taxenforcement.43 Explaining the tax law to taxpayers has become an importantway in which the IRS fulfills this service mission. The IRS's customer serviceobligations arise from several legislative and executive mandates.

The 1998 IRS Reforms. In 1998, largely in response to perceived abuses ofenforcement discretion by IRS officials,44 Congress enacted major reforms toheighten the IRS's emphasis on "customer service."45 Following the enactmentof these changes, the IRS adopted a new mission statement: "[P]rovideAmerica's taxpayers top quality service by helping them understand and meettheir tax responsibilities and by applying the tax law with integrity and fairness

41 Some commentators have focused on the importance of IRS guidance generally. See, e.g., NAT'L

TAXPAYER ADVOCATE, 2013 ANNUAL REPORT TO CONGRESS: EXECUTIVE SUMMARY: PREFACE ANDHIGHLIGHTS 44 (2013). Some recent work has focused on taxpayers' legal ability to rely on IRS publicationsin support of their tax positions. See, e.g., Emily Cauble, DetrimentalReliance on IRS Guidance, 2015 WIS. L.REv. 421; Dashiell C. Shapiro, Can Taxpayers Rely on IRSForm Instructions?, 149 TAx NOTES 945 (2015).

42 The Agency, Its Mission and Statutory Authority, supra note 8.43 See I.R.S. News Release IR-98-59, New IRS Mission Statement Emphasizes Taxpayer Service

(Sept. 24, 1998), https://www.irs.gov/pub/irs-news/ir-98-59.pdf44 See, e.g., IRS Oversight: Hearings Before the S. Comm. on Fin., 105th Cong. 1 (1998) (statement of

Sen. William V. Roth, Jr., Chairman, S. Comm. on Finance); Ryan J. Donmoyer, Three Days of HearingsPaint Picture of Troubled IRS, 76 TAx NOTES 1655, 1655-66 (1997). Later investigations revealed many ofthese stories to be exaggerated. See U.S. GEN. ACCOUNTING OFFICE, GAO/GGD-99-82, TAXADMINISTRATION: ALLEGATIONS OF IRS EMPLOYEE MISCONDUCT 3, 19 (1999).

45 Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 1205, 112Stat. 685, 722 23; see also Lederman, supra note 10, at 992 93.

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to all."-4 6 The IRS implemented its new mission by shifting personnel and otherresources away from tax enforcement and toward taxpayer service, makingservice of taxpayers a major part of the IRS's role,47 a change that has lastedwell past the 1998 IRS restructuring.48

Plain Writing Act of 2010. Statutory developments since 1998 reinforceand expand the IRS's duty to explain the tax law to taxpayers. The IRS, likeother federal agencies, is subject to the requirements of the Plain Writing Actof 2010, a statutory framework that seeks "to improve the effectiveness andaccountability of Federal agencies to the public by promoting clearGovernment communication that the public can understand and use."49 Underthis statute, the IRS must use "plain writing" in its communication withtaxpayers, meaning that it must provide written explanations and instructionsthat are "clear, concise, well-organized, and follow[] other best practicesappropriate to the subject or field and intended audience."50 Congressspecifically applied its plain writing framework to documents related to "filingtaxes," including IRS publications.51 Following enactment of the Plain WritingAct, IRS officials indicated that the agency would "communicate in clear,easily understandable language on all of our forms, publications, documentsand notices."

52

Taxpayer Bill of Rights. In 2014, at the urging of the National TaxpayerAdvocate, the IRS adopted a "Taxpayer Bill of Rights," a clear description often categories of existing rights to which taxpayers are entitled under various

46 I.R.S. News Release IR-98-59, New IRS Mission Statement Emphasizes Taxpayer Service (Sept. 24,

1998), https://www.irs.gov/pub/irs-news/ir-98-59.pdf.47 Numerous scholars have suggested that this change has had a negative impact on the IRS's

enforcement capacity. See, e.g., Bryan T. Camp, Tax Administration as Inquisitorial Process and the PartialParadigm Shift in the IRS Restructuring and Reform Act of 1998, 56 FLA. L. REV. 1, 117 28 (2004);Lederman, supra note 10, at 982 90; see also DAVID CAY JOHNSTON, PERFECTLY LEGAL: THE COVERTCAMPAIGN TO RIG OUR TAX SYSTEM TO BENEFIT THE SUPER RICH AND CHEAT EVERYBODY ELSE 293 95(2003) (criticizing 1998 reforms); U.S. GEN. ACCOUNTING OFFICE, GAO-02-674, TAX ADMINISTRATION:IMPACT OF COMPLIANCE AND COLLECTION PROGRAM DECLINES ON TAXPAYERS, 10 30 (2002) (detailing post-1998 reductions in tax enforcement).

48 Service remains a major part of the IRS's mission today. See The Agency, Its Mission and StatutoryAuthority, supra note 8.

49 Plain Writing Act of 2010, Pub. L. No. 111-274, § 2, 124 Stat. 2861, 2861 (2010); see also Exec.

Order No. 13,563, 3 C.F.R. § 13563 (2011).50 Pub. L. No. 111-274, § 3(3) (2010)."i Pub. L. No. 111-274, § 3(2)(A)(i).52 INTERNAL REVENUE SERV., supra note 14, at 2.

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provisions of the Internal Revenue Code and other statutory authorities.53

Starting in 2014, the IRS publicized the Taxpayer Bill of Rights on its websiteand in a special publication, Your Rights as a Taxpayer. The first of the tenenumerated rights is that all taxpayers possess "[t]he [r]ight to [b]e[i]nformed., 54 In describing this right, the IRS states that taxpayers have theright to "clear explanations of the laws and IRS procedures in all tax forms,instructions, publications, notices, and correspondence. " 55

A significant way in which the IRS helps taxpayers "understand and meettheir tax responsibilities"56 is through the issuance of IRS publications to thegeneral public. IRS publications are the primary documents that the agencyuses to describe the tax law to individuals, small businesses, and taxprofessionals, and, as a result, they exemplify the IRS's provision of guidancein service of taxpayers. IRS publications often include a variety of explanatoryinformation, general guidance, definitions for important terms, and examplesintended to show taxpayers how the law applies.57

B. Explanation Approaches

To satisfy its duty to explain the tax law, the IRS adopts severalcommunication approaches in IRS publications. These methods result from theIRS's own policies and from guidance implementing the Plain Writing Act(Plain Language Guidelines) issued by the Office of Information andRegulatory Affairs (OIRA) within the Office of Management and Budget.58

Tailoring Explanations for a Specific Audience. The IRS openlyacknowledges that when drafting IRS publications, the agency adjusts itslanguage depending on whether members of the general public or taxprofessionals are potential audience members.59 For publications that it intendsto direct to the general public, the IRS states that the "plain language [it] use[s]

53 I.R.S. News Release IR-2014-72 (June 10, 2014), https://www.irs.gov/uac/newsroom/irs-adopts-

taxpayer-bill-of-nights-10-provisions-to-be-highlighted-on-irsgov-in-publication- 1.54 INTERNAL REVENUE SERv., PUB. No. 1, YOUR RIGHTS AS A TAXPAYER: THE TAXPAYER BILL OF

RIGHTS (2014), http://www.irs.gov/pub/irs-pdf/pl.pdf55 Id.56 I.R.S. News Release, supra note 11.57 See Forms & Publications, INTERNAL REVENUE SERV., http://www.irs.gov/forms-pubs (last updated

June 28, 2016).58 OFFICE OF MGMT. & BUDGET, supra note 7; PLAIN LANGUAGE ACTION & INFO. NETWORK, FEDERAL

PLAIN LANGUAGE GUIDELINES, (Mar. 2011, revised May 2011), http://www.plainlanguage.gov/howto/

guidelines/FederalPLGuidelines/FedemlPLGuidelines.pdf59 See INTERNAL REVENUE SERV., supra note 14, at 3.

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for this group is clear, simple and meaningful" because "this group does nothave a need to understand technical regulatory language."6 When addressingtax professionals, such as tax accountants, tax return preparers or tax lawyers,the IRS includes more specialized terminology than in publications intendedfor the general public.61

Eliminating Complexity. As part of its efforts to help taxpayers understandthe tax law and to comply with the Plain Writing Act, the IRS attempts toavoid complexity in drafting IRS publications. According to the PlainLanguage Guidelines, the IRS should "translate complicated provisions intomore manageable language"62 by avoiding discussion of complex details anddiscussions in these documents. For example, the guidelines state that the IRSshould avoid emphasizing exceptions to the tax law because

[w]hen you start a sentence with an introductory phrase or clausebeginning with "except," you almost certainly force the reader to re-read your sentence .... The audience must absorb the exception, thenthe rule, and then usually has to go back to grasp the relationshipbetween the two.63

In contrast, rather than restating the tax law precisely as it appears in statutes orregulations, the guidelines instruct the IRS to rewrite sentences to "emphasizethe positive. '64 Following enactment of the Plain Writing Act, the IRS hasreported that it has rewritten and redesigned dozens of IRS publications inorder "to improve comprehension.'"

65

Evaluating the Impact on the Taxpayer and the IRS. IRS officials alsoconsider the potential impact of the language they use in IRS publications ondifferent parties, including the IRS itself The Plain Language Guidelinessuggest that when drafting IRS publications for the general public or taxprofessionals, IRS officials should ask, "What's the best outcome for ouraudience? What do I need to say to get this outcome?' 66 Likewise, the IRS isalso instructed to consider how the text in any IRS publication may benefit the

60 Id.

61 See id.62 PLAIN LANGUAGE ACTION & INFO. NETWORK, supra note 58, at 50.63 Id. at 56.64 Id. at 55.65 See INTERNAL REVENUE SERV., supra note 14, at 4.

66 PLAIN LANGUAGE ACTION & INFO. NETWORK, supra note 58, at 2.

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IRS. The guidelines instruct IRS officials to ask themselves: "What's the bestoutcome for my agency? What do I need to say to get this outcome?"67

While the IRS is not the only federal agency with a duty to explain the lawthrough clear communication,68 several aspects of the IRS's responsibilitiesmake this duty both more challenging and impactful in the tax context than inother areas. First, compared to other agencies, the IRS must address moreindividuals and businesses on a regular basis through its publications.69

According to the IRS, the agency designs its publications to be comprehensibleto a mass audience, 150 million taxpayers annually.70 As commentators haveobserved, more U.S. citizens pay taxes each year than vote in presidentialelections. 71 Second, the tax law is arguably more complex than many otherareas of the law. As the Joint Committee on Taxation has concluded, uniquecomplexity in the federal tax law "make[s] it more difficult for the IRS toexplain the law to taxpayers in a concise and understandable manner .... "72

Last, no other federal agency requires as many individuals to self-assess theirown compliance with the law and then file an annual report of this assessmentwith the federal government as the IRS.73 Scholars and policymakers have longnoted that the requirement to file the annual Form 1040, the individual incometax return, is perhaps the most significant burden that the government imposeson individuals.74 The IRS thus faces a uniquely challenging and significanttask in attempting to satisfy its duty to explain the tax law to taxpayers usingplain language.

67 Id. (emphasis added).68 See SUNSTEIN, supra note 13 (regarding Plain Writing Act of 2010); see also David Zaring, Best

Practices, 81 N.Y.U. L. REV. 294, 296 97 (2006) (discussing extensive use of "best practices" by federal

agencies).69 See, e.g., Dobson v. Comm'r, 320 U.S. 489, 494 95 (1943) ("No other branch of the law touches

human activities at so many points.").70 INTERNAL REVENUE SERV., supra note 14, at 4.71 See Joshua D. Rosenberg, A Helpful and Efficient IRS: Some Simple and Powerful Suggestions, 88 KY.

L.J. 33, 37 (1999); see also JOINT COMM. ON TAXATION, JCS-3-01, STUDY OF THE OVERALL STATE OF THEFEDERAL TAX SYSTEM AND RECOMMENDATIONS FOR SIMPLIFICATION, PURSUANT TO SECTION 8022(3)(B) OF

THE INTERNAL REVENUE CODE OF 1986, at 4 (2001).72 JOINT COMM. ON TAXATION, JCX-26-01, TESTIMONY OF THE STAFF OF THE JOINT COMMITTEE ON

TAXATION CONCERNING A STUDY OF THE OVERALL STATE OF THE FEDERAL TAX SYSTEM AND

RECOMMENDATIONS FOR SIMPLIFICATION 5 (2001). For further discussion, see MICHAEL J. GRAETz, THEDECLINE (AND FALL?) OF THE INCOME TAX 49 (1997) (addressing complexity of income tax system); Mock &Shurtz, supra note 31, at 524 25; Deborah H. Schenk, Simplification for Individual Taxpayers: Problems and

Proposals, 45 TAXL. REV. 121, 123 (1989).73 See NAT'L TAXPAYER ADVOCATE, supra note 9, at 8 10.74 See, e.g., id. at 8; see also Thomas, supra note 32, at 19.

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C. In Praise of Plain Language

The effort to mandate that the IRS, among other federal agencies, use plainlanguage in communications with taxpayers in general publications hasreceived widespread praise.75 Proponents of the legislation characterized it asrepresenting "common-sense change"76 that could be "implemented at lowcost."'7 7 Others predicted that efforts such as this would force federalgovernment agencies to replace "bureaucratic gobbledygook"78 with "easy-to-understand language"79 throughout their communications. The Plain WritingAct was enacted with overwhelming bipartisan support in 2010. While somescholars have begun to study the efficacy of the Plain Writing Actempirically,80 and others have questioned whether such policies will indeedmake the law more "understandable,"'" there has been limited, if any,opposition to the primary objectives motivating these plain languageinitiatives. Each of the objectives is described briefly below.

Simplicity and Self-Assessment. The primary rationale for mandating thatthe IRS communicate with taxpayers using plain language is that the approachwill result in simplicity, which, in turn, will assist taxpayers in self-assessingtheir tax liability and filing their tax returns. Cass Sunstein, the primaryarchitect of the Plain Writing Act in his role as head of OIRA, has argued that"[c]lear and simple communication... makes it easier for members of thepublic to understand and to apply for important benefits and services for whichthey are eligible. 8 2 Sunstein describes the primary rationale for this initiativeas follows: "Simply put, the principle is this: Avoid ambiguity and be specificabout the favored path.8 3 In the tax context, Sunstein has further noted that theIRS should provide plain language explanations and instructions in order to

75 See, e.g., Joe Davidson, Hiring Officials Have Finally Heard the Magic Word: Resumes, WASH. POST,May 12, 2010, at B3.

76 Press Release, Office of Rep. Bruce Braley, Braley Introduces "Plain Language in Health Insurance

Act" to Lower Costs, Cut Confusion, June 25, 2009, htt://www.plainlanguage.gov/news/index.cfmtopic=

ysnHealth.77 id.78 Katy Steinmetz, Government Officials May Be Using Less Mumbo Jumbo, TIME (Jan. 27, 2015),

http://time com/3685016/government-plain-witing-2014/.79 Press Release, Office of Rep. Bruce Braley, supra note 76.80 See, e.g., Cynthia R. Farina, Mary J. Newhart & Cheryl Blake, The Problem with Words: Plain

Language and Public Participation in Rulemaking, 83 GEo. WASH. L. REv. 1358 (2015) (finding mixed

success of the Plain Writing Act).

81 See OMRi BEN-SHAHAR & CARL E. SCHNEIDER, MORE THAN You WANTED TO KNOW: THE FAILUREOF MANDATED DISCLOSURE 122 (2014).

82 OFFICE OF MGMT. & BUDGET, supra note 7.83 SUNSTEIN, supra note 13, at 78.

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"assist the public in complying with applicable requirements simply becausepeople better understand what they are supposed to do."84 An undisputableobjective of the plain language movement is to make this burden of taxcompliance as simple and "painless as possible."8 5 Indeed, the IRS hasexpressed Sunstein's sentiments in the first words of the Taxpayer Bill ofRights, stating that "[t]axpayers have the right to know what they need to do tocomply with the tax laws."8 6 Plain language is central to the IRS's commitmentthat taxpayers enjoy this right.

Equity. The plain language movement also seeks to reduce the potential forvague tax laws to result in inequitable distribution of tax benefits and burdensamong taxpayers. Without clear explanations of the tax law, plain languageadvocates argue, some taxpayers may fail to take advantage of governmentbenefits for which they may be eligible, such as the Earned Income TaxCredit87 or the Child Tax Credit.88 As Sunstein has suggested, "[a] lack ofclarity may prevent people from becoming sufficiently aware of programs orservices, and... may discourage participation."8 9 Conversely, plain languageadvocates suggest that without clear instructions from the IRS, somesophisticated taxpayers may attempt to exploit ambiguities in the tax law toclaim tax benefits that Congress never intended. For example, Nina Olson,National Taxpayer Advocate, has reported that without clear guidance,"sophisticated taxpayers often find loopholes that enable them to reduce oreliminate their tax liabilities. " 90 Equity concerns, consequently, have played asignificant role in motivating the IRS's duty to explain the tax law to thepublic.

Transparency. A final impetus for the IRS to use plain language is that thisapproach may strengthen government transparency. With access to plainlanguage descriptions of the tax laws, plain language advocates suggest,citizens can better understand the actions of Congress, the Treasury, and the

84 OFFICE OF MGMT. & BUDGET, supra note 7.

85 NAT'L TAXPAYER ADVOCATE, supra note 9, at 5.

86 BILL OF RIGHTS, supra note 11.87 I.R.C. § 32 (2012).88 I.R.C. § 24 (2012).89 OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, MEMORANDUM M-11-05,

PRELIMINARY GUIDANCE FOR THE PLAIN WRITING ACT OF 2010 (2010).90 Michelle Singletary, Congress Should Resolve to Simplify the Tax Code, WASH. POST, Jan. 8, 2009, at

D2 (quoting Nina Olson, National Taxpayer Advocate).

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IRS.9 They can react to this enhanced knowledge either by accepting or byquestioning the tax laws through public discussion and debate. As Sunsteinnoted following the enactment of the Plain Writing Act in 2010, plain language"should be seen as an essential part of open government."92

II. SIMPLEXITY IN IRS PUBLICATIONS

There is another side to plain language. While proponents of plain languageargue that it will lead to greater simplicity and administrability of the taxsystem,93 the initiative does not make substantive changes to the myriadcomplexities of the tax law-technical details, exceptions (and exceptions toexceptions), and ambiguous statutory and judicial language. In this Part, weargue that the IRS's efforts to incorporate plain language into itscommunications with taxpayers result not in greater simplicity, but instead insimplexity. Whereas simplicity eliminates complexity, simplexity offers onlythe appearance of simplicity.

As we show, following an extensive review of IRS publications, the IRSroutinely offers descriptions of the tax law that exhibit simplexity. IRSpublications transform complex, often ambiguous tax law into seeminglysimple, straightforward statements (which we describe as "IRSsimplifications"). Sometimes IRS simplifications benefit the government. Atother times, they benefit taxpayers. In any event, the mandate to describe thetax law using plain language provides the IRS with a unique and influentialability to shape taxpayers' and tax practitioners' perceptions and understandingof the tax law.

This Part introduces the concept of simplexity to the tax literature, providesexamples in IRS publications that fall into several common categories, andshows how taxpayers who complete their tax returns in various different waysare repeatedly exposed to simplexity.

91 See, e.g., OFFICE OF MGMT. & BUDGET, supra note 89 ("Transparency, public participation, and

collaboration cannot easily occur without plain writing."); see also SUNSTEIN, supra note 13; Joel Siegel,Obama Signs Plain Writing'Law, ABCNEWS (Oct. 17, 2010), http://abcnews.go.com/WN/obama-signs-law-

understand/storyid-11902841 (quoting Rep. Bruce Braley, D-Jowa, as stating that "plain language willincrease government accountability").

92 OFFICE OF MGMT. & BUDGET, supra note 89.93 See SUNSTEIN, supra note 13, at 185.

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A. What Is Simplexity?

While there is no universal definition of simplexity, representativedescriptions include "the process of simplifying something by obscuring themore complex aspects of the original goal' 94 and "an idea, or concept thatappears to be simple to understand, yet is very complex in it's [sic] truedescription."95 In this subpart, we distinguish simplexity from simplicity,provide several examples of simplexity in non-legal contexts, and define ourusage of the term in this Article.

Before defining simplexity, it is necessary to consider simplicity. Thedictionary definition of simplicity refers to the "state of being simple,uncomplicated, or uncompounded.,96 In his recent book, Simpler: The Futureof Government, Cass Sunstein notes that the overarching goal of the "large-scale transformation in American government"97 that occurred as a result ofinitiatives such as the Plain Writing Act was to "increase simplicity" 98 throughthe government's communications with the public. In the context offundamental tax reform, government officials have defined simplicity in thenegative by stating that it is "not reflected in [taxpayers] .... computingdozens of deductions and credits, and wondering all the while whether othermeans of saving tax might have been missed through ignorance of the laws."99

Simplicity, according to this description, occurs when the government reformsor designs the tax law by "eliminat[ing] and avoid[ing] provisions that wouldunduly complicate tax administration and compliance for most taxpayers."00

Simplicity is, thus, the antithesis of complexity, or, as Sunstein has posited,"simplicity is friendly, and complexity is not."''

Simplexity is distinct from simplicity in that simplexity refers to a conceptthat appears to be simple, but that nonetheless retains underlying complexity.As neurophysiologist Alain Berthoz has written, "[s]implexity is notsimplicity. It is fundamentally linked with complexity, with which it shares

94 Simplexity, COLLINS DICTIONARY, http://www.collinsdictionary.com/submission/1290/Simplexity (lastupdated July 20, 2012).

95 Simplexity, URBAN DICTIONARY, http://www.urbandictionayy.com/define.phpterm-Simplexity (lastupdated Nov. 19, 2006).

96 Simplicity, MERLAM-WEBSTER, http://www merriam-webstercorm/dictionary/simplicity (last visited

Sept. 29, 2016).97 SUNSTEIN, supra note 13, at 2.98 Id.99 See OFFICE OF THE SECY, supra note 18, at 15 16.

i00 Id. at 16.101 SUNSTEIN, supra note 13, at 1.

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common roots."'0 2 A few examples illustrate the appearance of simplexityoutside of law. Scientists have used the term to describe the appearance ofphenomena whose simplicity obscures underlying complexity, such as aseemingly simple houseplant, whose simple green leaves obscure itsunderlying "microhydraulics and fine-tuned metabolism and dense schematicof nucleic acids."'1 3 Similarly, psychology researchers have referred tosimplexity as a "cognitive process that compresses information and synthesizesit without losing its complexity.' 1 4 Commentators have noted that certainliterary forms, such as metaphors and fables, are simplex as their accessiblenarrative conceals deeper, underlying meaning.10 5 For instance, Berthoz hasargued that simplexity occurs in characters such as the seven dwarves, for"Dopey is not as dopey as he seems" because he is "not a village idiot but awitness and wise presence .... "106 In another artistic setting, simplexity hasbecome a foundational principle of Pixar Animation Studios, producer ofacclaimed computer-animated feature films. 107 As one of its lead animators hasstated, the studio's artists strive to achieve simplexity by "simplifying animage down to its essence,"'1

08 which causes complexity of texture, design anddetail to be "masked by how simple the form is."' 10 9

We now offer our definitions of terms that we apply throughout theremainder of this Article. While tax scholars frequently discuss"simplification" as a normative goal of tax design and reform,110 we definesimplification as resulting in two distinct possibilities, "simplicity" and"simplexity." We define "simplicity" as occurring when policymakers reformthe law by eliminating specific complex provisions or procedures throughenactment of statutory changes or issuance of regulations. For instance, wewould consider a tax system that repeals specific complex deductions orstatutory exceptions or that exempts millions of low-income taxpayers fromfiling tax returns at all as one that exhibits simplicity. In contrast, we define

102 BERTHOZ, supra note 22, at x.

103 KLUGER, supra note 20, at 11.

104 Gelalian, supra note 21, at 185.

105 See, e.g., BERTHOZ, supra note 22, at 208 ("Metaphor... is a wonderful way of shortcuttinglanguage.").

106 Id107 See HAUSER, supra note 23, at 18.

108 Id (quoting Pixar animator Ricky Nierva).109 Idii0 See Boris I. Bittker, Tax Reform and Tax Simplification, 29 U. MIAMI L. REv. 1 (1974); Joel Slemrod,

The Return to Tax Simplification: An Econometric Analysis, 17 PUB. FIN. REV. 3, 3 (1989); supra note 99 andaccompanying text.

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"simplexity" as resulting when the government offers clear and simpleexplanations of the law without highlighting its underlying complexity orreducing this complexity through formal legal changes. We refer to suchexplanations and descriptions as "IRS simplifications."

B. Categories and Examples

Simplexity pervades IRS publications. The IRS frequently attempts todescribe the tax law in simplified terms in IRS publications, which areintended for both the general public and tax professionals, after consideringlikely effects on taxpayers and the IRS itself As this subpart shows, IRSsimplifications can be grouped into three categories, based on descriptions that:(1) present contested tax law as clear tax rules, (2) add administrative gloss tothe tax law, and (3) fail to fully explain the tax law, including possibleexceptions.

1. Presenting Contested Tax Law as Clear Tax Rules

As tax lawyers, accountants, and law students are well aware, the judiciaryplays an important role in interpreting the tax law."' The judiciary'sinvolvement in interpreting the tax law often underscores, and, at times, evenincreases the ambiguity regarding the tax law's meaning. The examples belowillustrate how the IRS often presents tax positions that are the subject ofjudicial ambiguity as if they are unambiguous tax rules.

a. Deductibility of Ordinary and Necessary Business Expenses

A classic example of an ambiguous tax law provision is the deduction for"ordinary and necessary" trade or business expenses incurred during thetaxable year. " 2 In order to determine whether a taxpayer can deduct expensesas trade or business expenses, the taxpayer must determine that such expensesare both "ordinary" and "necessary.""' Explaining what, exactly, these termsmean is a famously difficult task. For example, in attempting to articulate thestandard for deductibility of business expenses, Justice Cardozo stated that

111 See Leandra Lederman, What Do Courts Have to Do With It?: The Judiciary's Role in Making FederalTax Law, 65 NAT'L TAX J. 899, 899 (2012).

112 I.R.C. § 162(a) (2012); Treas. Reg. § 1.162-1(a) (2016).113 Deputy v. Du Pont, 308 U.S. 488, 497 (1940); Welch v. Helvering, 290 U.S. 111, 113 (1933).

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"[o]ne struggles in vain for any verbal formula that will supply a readytouchstone."114

IRS Simplification. Despite this inherent legal ambiguity, the IRS uses anIRS publication as a vehicle for providing a ready, albeit overly clear,touchstone to taxpayers. The IRS presents taxpayers with a straightforwardsummary of the test for deductibility of business expenses in IRSPublication 535 (Business Expenses)."l5 In this publication, the IRS states that"a business expense must be both ordinary and necessary" to be deductible."16

With respect to the "ordinary" prong, Publication 535 instructs taxpayers that"[a]n ordinary expense is one that is common and accepted in yourindustry." ' This definition imposes on taxpayers the obligation to determinewhether other taxpayers operating similar businesses-the taxpayer's"industry"-incur the expense at issue in their business practices (i.e., whetherthe expense is "common and accepted")."8

Tax Law. In contrast to the clear rule expressed in the IRS publication,courts have exhibited differing approaches to what satisfies the "ordinary"

requirement. Several courts have adopted the view expressed in IRSPublication 535 by asking whether other similarly-situated taxpayers haveincurred the business expense at issue. "' Yet other courts have statedexplicitly that taxpayers may treat business expenses as ordinary even if few orno other similarly-situated taxpayer in the relevant industry incurs thisexpense. 120 As one court held, a taxpayer "should not be penalized taxwise forhis business ingenuity in [incurring business expenses] which do not conformto the practices of one whom he is naturally trying to surpass in profits."'121

Some courts have similarly looked askance, finding that the percentage oftaxpayers in an industry that has incurred a specific expense is irrelevant towhether an expense is ordinary.'22 And in internal memoranda, even IRS

114 Welch, 290 U.S. at 115.115 INTERNAL REVENUE SERV., supra note 3, at 3.116 Id.

117 Id.

118 Id.

119 See, e.g., Reffett v. Comm'r, 39 T.C. 869, 878 89 (1963) (considering whether other coal operators

paid same contingent witness fees as taxpayer).120 See, e.g., United Title Ins. v. Comm'r, 55 T.C.M. (CCH) 34, 45 (1988) (holding that even if taxpayer

were only one to incur certain expenses, "that in itself would not mean the expenses were not ordinary withinthe meaning of section 162(a)").

121 Poletti v. Comm'r, 330 F.2d 818, 822 (8th Cir. 1964).122 Brizell v. Comm'r, 93 T.C. 151, 158 59 (1989) ("We reject the suggestion that a given percentage of

an industry must pay or incur a certain expense in order for the expense to be ordinary.").

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officials have concluded that expenses may satisfy the ordinary prong despitethe fact that they are not common practice because "[t]hat which today is anovel method of generating business may be commonplace tomorrow."123

In even starker conflict with the IRS's characterization of the "ordinary"prong in Publication 535, some courts have held that the "ordinary" prong issimply meant to clarify that, even though an expense may be necessary, it maynot be deductible in the year in question because the expense may relate to theproduction of income in future tax years.124 For instance, in one decision, theSupreme Court found that the "principal function of the term 'ordinary' in§ 162(a) is to clarify the distinction, often difficult, between those expensesthat are currently deductible and those that are in the nature of capitalexpenditures ".... 125 Citing this language, other courts have refrained fromconsidering whether an expense is "common and accepted" in the taxpayer'sindustry. 1

26

Taxpayer Effects. Despite the differing judicial interpretations of the termordinary under § 162(a) of the Code, Publication 535 presents the taxpayerwith an unequivocal definition of an ordinary expense as one that is commonand accepted in the taxpayer's industry.127 Taxpayers who apply the clear rulestated in IRS Publication 535 may reasonably conclude they are not entitled toclaim business expense deductions, even if they would have been entitled to doso under one of the alternative judicial interpretations. For example, assume abaker pays legal fees to retain an attorney to defend the baker against claims offood poisoning by customers. Under IRS Publication 535, if the baker cannotidentify other owners of bakeries who have paid similar legal fees, the bakershould conclude that this expense does not satisfy the ordinary standard and,consequently, should forego a business expense deduction.28 A morecomprehensive understanding of potentially applicable case law may haveencouraged the baker to claim the deduction.29 The forgone deduction wouldmost likely increase the tax liability of the baker.

123 I.R.S. Field Service Advisory, 1996 WL 33320948 (Sept. 18, 1996).124 See, e.g., Comm'rv. Tellier, 383 U.S. 687, 689 70 (1966).125 Id. at 689.126 See, e.g., Raymond Bertolini Trucking Co. v. Comm'r, 736 F.2d 1120 (6th Cir. 1984).127 See INTERNAL REVENUE SERV., supra note 3, at 3.128 Id.

129 See supra notes 120 23 and accompanying text.

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b. Deductibility of Home Mortgage Refinancing Points

The IRS publication regarding the deductibility of home mortgage"refinancing points" provides another example of an IRS simplification thatpresents contested tax law as a clear tax rule.130 Homeowners with mortgagesmay pay "points" to their lenders in order to reduce their mortgage interestrate.131 When these homeowners pay points, they may wonder whether theycan deduct them in the year of payment. After all, such points essentiallyrepresent prepaid interest, and home mortgage interest is tax deductible,subject to various limitations. Further, the Code explicitly allows taxpayers toclaim a tax deduction for "points paid in respect of any indebtedness incurredin connection with the purchase or improvement of, and secured by, theprincipal residence of the taxpayer .... "132 Yet the statutory language does notoffer the taxpayer guidance regarding the deductibility of points that areincurred purely to refinance an existing mortgage rather than to purchase a newhome or improve an existing one. 133

IRS Simplification. To fill this statutory void, the IRS provides clearguidance to taxpayers regarding whether and when refinancing points aredeductible. In IRS Publication 936 (Home Mortgage Interest Deduction), theIRS states:

Generally, points you pay to refinance a mortgage are not deductiblein full in the year you pay them. This is true even if the newmortgage is secured by your main home.

However, if you use part of the refinanced mortgage proceeds toimprove your main home and you meet the first 6 tests listed underDeduction Allowed in Year Paid, you can fully deduct the part of thepoints related to the improvement in the year you paid them withyour own funds. 134

In other words, the IRS advises taxpayers that they are not entitled to claimcurrent-year tax deductions for refinancing points, unless the taxpayer usesproceeds from the refinancing to improve the home. Rather than deduct

130 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. No. 936, HOME MORTGAGE INTEREST

DEDUCTION 7 (2015).131 Id. at 5 ("The term 'points' is used to describe certain charges paid, or treated as paid, by a borrower to

obtain a home mortgage."). For an example of refinancing points, see Buying Points to Lower Your RefinanceRate, BANK OF AMERICA, https://www.bankofamerica.com/home-loans/refinance/understanding-your-new-

payment/buying-points-lower-interest-mte.go (last visited Aug. 13, 2016).132 I.R.C. § 461(g)(2) (2012).133 Id.

134 INTERNAL REVENUE SERV., supra note 130, at 7.

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refinancing points, the IRS states that taxpayers must amortize them over thelife of the loan. 135

Tax Law. While the IRS presents the tax law as an unambiguous rule, thecase law regarding this issue is not as clear. The description in IRSPublication 936 is the IRS's own position.136 However, the IRS's view is notnecessarily correct. For instance, in Huntsman v. Commissioner, the EighthCircuit Court of Appeals held that refinancing points were immediatelydeductible in a situation in which the refinancing was an integrated step inobtaining permanent financing.137 The IRS expressed its disagreement withthis conclusion and its intention not to follow the Eight Circuit's decisionoutside the Eighth Circuit. 138

The IRS does not signal the existence of this contrary court authority to thetaxpayer in IRS Publication 936, instead simply setting forth the IRS's ownposition as the rule. The IRS does preface its description of the rule with theword "generally."'139 However, the word "generally" does not provide anyindication of the controversy surrounding the IRS's position, or the IRS'sdefeat in pressing the issue in court. 140 Rather, the word "generally" seems tointroduce the unrelated set of exceptions in the following sentence. 14 1 Even ifthe word "generally" is meant to signal some sort of exception to the generalrule that the IRS sets forth in the first sentence, it is an oblique reference atbest. To anything but the most trained eye, this IRS simplification presents theIRS's contested view as the rule.

Taxpayer Effects. For taxpayers who are questioning whether to deductrefinancing points, the relevant IRS publication provides straightforwardguidance: such points are not deductible in the year paid unless the refinancingproceeds are used to improve the home. Taxpayers, therefore, may foregocurrent deductions, even though some courts may respect such deductionsunder certain conditions. Alternatively, a taxpayer may choose to spend theproceeds of a home mortgage refinancing on home improvement expenses in

135 Id.

136 See Rev. Rul. 87-22, 1987-1 C.B. 146 (setting forth the IRS's position).137 905 F.2d 1182, 1185 86 (8th Cir. 1990).138 Hunstmanv. Comm'r, 905 F.2d 1182 (8th Cir. 1990), action on dec., 1991-02 (Feb. 11, 1991).139 INTERNAL REVENUE SERV., supra note 130, at 7.

140 See Huntsman v. Comm'r, 91 T.C. 917 (1988), rev'd, 905 F.2d 1182 (8th Cir. 1990). For further

discussion, see James E. Tierney, Pointing the Way Through Section 461(g): The Deductibility of Points Paidin Connection with the Acquisition or Improvement of a Principal Residence, 71 NEB. L. REV. 1095 (1992).

141 INTERNAL REVENUE SERV., supra note 130, at 7.

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order to ensure immediate deductibility of the refinancing points. If thetaxpayer would not otherwise pursue the home improvement, the IRSpublication would distort the taxpayer's behavior, resulting in inefficiency.Taxpayers who forego immediate deductions of the home mortgagerefinancing points may still deduct the refinancing points over the term of theloan.142 But, for many taxpayers, immediate, full deductibility is morebeneficial than prolonged, partial deductibility over a period of years.143 As aresult, this IRS simplification may have adverse tax consequences for manytaxpayers.

c. Tax Characterization of Leveraged Leases

The IRS's description of "leveraged leases" provides a final example of anIRS simplification that turns contested tax law into a clear rule.144 Leveragedleases are a common form of financing business assets that typically involvesthree actors: a lessee (an operating business such as a manufacturer or airline),a lessor (such as an investment fund), and a creditor (a bank).145 The lessorpurchases business assets using heavy debt financing from the creditor. Thelessor then leases the business assets to the lessee. The motivation for thelessor to purchase the business assets is that the lessor will claim taxdeductions for depreciation of the business assets. The central legal questionraised by this transaction is whether the lessor is properly characterized as theowner of the leased business assets for tax purposes, which would entitle it tothe depreciation tax deductions. 146

IRS Simplification. To address this question, in IRS Publication 535(Business Expenses), the IRS warns taxpayers that "[l]everaged leasetransactions may not be considered leases."'147 As a result, it suggests that

142 See supra note 135 and accompanying text.143 See William D. Andrews, A Consumption- Type or Cash Flow Personal Income Tax, 87 HARV. L. REV.

1113, 1152 (1974); Daniel I. Halperin, Interest in Disguise: Taxing the "Time Value of Money", 95 YALE LJ.506 (1986); Alvin C. Warren, Jr., The Timing of Taxes, 39 NAT'L TAX J. 499 (1986).

144 INTERNAL REVENUE SERV., supra note 3, at 9.145 See James C. Ahlstrom, Iris C. Engelson & Victor Sirelson, The Economics of Leveraged Leasing, in 1

EQUIPMENT LEASING LEVERAGED LEASING 6-2 (Ian Shmnk & Arnold G. Gough, Jr., eds., 4th ed. 2008).146 For examples of judicial controversy over whether a lease should be respected, see Frank Lyon Co. v.

United States, 435 U.S. 561 (1978); BB&T Corp. v. United States, 523 F.3d 461 (4th Cir. 2008); TransamericaCorp. v. United States, 7 Cl. Ct 441 (1985). For further discussion, see Charles I. Kingson, The ContinuedConfusion over Tax Ownership, 93 TAx NOTES 409 (2001); Alex Raskolnikov, Contextual Analysis of TaxOwnership, 85 B.U. L. REV. 431 (2005); Bernard Wolfman, The Supreme Court in Lyon's Den: A Failure ofJudicial Process, 66 CORNELL L. REV. 1075 (1981) (criticizing FrankLyon Co.).

147 INTERNAL REVENUE SERV., supra note 3, at 9.

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taxpayers should consider seeking a private letter ruling from the IRSaddressing the tax treatment of the leveraged lease.'48 The IRS states thattaxpayers must meet several requirements to secure a ruling that the transactionis, in fact, a lease: (1) "[t]he lessor must maintain a minimum unconditional 'atrisk' equity investment in the property," which the IRS defines as at least 20%of the property's cost, (2) "[t]he lessee may not have a contractual right to buythe property from the lessor" at a discounted price, (3) "[t]he lessee may notinvest in the property, except as provided" in other IRS guidance, (4) "[t]helessee may not lend any money to the lessor to buy the property," and (5)"[t]he lessor must show that it expects to receive" an economic profit, absenttax consequences, from the transaction. 149

Tax Law. While the IRS publication presents taxpayers with clearguidelines, the issue of whether a lease should be respected for tax purposes ishighly contestable and fact-specific. In several cases, courts have rejected theIRS's argument that the taxpayer failed to enter into a true lease merelybecause the taxpayer did not meet the guidelines described in IRSPublication 535. For instance, in Estate of Thomas v. Commissioner, the TaxCourt rejected the IRS's application of the 20% equity investment guideline. 150

In another decision, the Tax Court stated explicitly that it was not "obligated toadhere" to the IRS's guidelines. "5' Other judicial decisions have disregardedthe IRS's guideline that lessees may not lend money to the lessor withoutthreatening the lessor's ability to claim ownership of property. 152 Indeed,summarizing courts' reactions to the guidelines, one commentator has stated,courts "have not accorded [them] much significance either as a body of logicor as a viable summary of legal precedents."'153

Taxpayer Effects. One could argue that IRS Publication 535 merelycatalogues what the IRS requires in order to offer taxpayers a private letterruling that the IRS will, in fact, treat a transaction as a lease. But by describingits own guidelines in Publication 535 without mentioning any of the judicialdoubt about such guidelines, IRS Publication 535 creates a belt-and-suspenders

148 id.149 id.150 84 T.C. 412,440 & n.51 (1985).151 Boyce v. Comm'r, T.C. Summ. Op. 2010-100, at 4 (2010).152 See, e.g., Lansburgh v. Comm'r, 54 T.C.M. 691, 697 (1987) (respecting lease where lessee provided

loan to lessor); L.W. Hardy Co. v. Comm'r, 52 T.C.M. (CCH) 1540, 1552 (1987) (respecting lease wherelessee provided loan to lessor); see also I.R.S. Tech. Adv. Mem 8046013 (Aug. 8, 1980) (respecting leasewhere lessee agreed to reimburse lessor under certain circumstances).

153 Toby Cozart, Equipment Leasing: Substance and Form, TAX MGMT. PORTFOLIO (BNA) 544 (2009).

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type of advantage for the IRS's own view of the law. Specifically, the IRS usesPublication 535 to highlight its own guidelines as a distillation of the relevantfactors that taxpayers should consider, despite conflicting case law. Whilesome savvy taxpayers may go on to research judicial alternatives, many othersmay simply accept the IRS's view. This IRS simplification, thus, can shapesome taxpayers' and advisors' perceptions of the tax law in ways that areconsistent with the IRS's views.

2. Adding Administrative Gloss to the Tax Law

Another example of simplexity occurs when the IRS adds its ownadministrative gloss to the tax law as it describes the applicable tax law. As theexamples below demonstrate, these additions of administrative gloss can resultin representations of the tax law that deviate from relevant provisions of theCode, Treasury regulations, and case law.

a. Capitalization of Improvements

The IRS's description of the rules regarding capitalization of improvementsis an illustration of the IRS's propensity to add administrative gloss to the taxlaw.5 4 If a taxpayer incurs an expense "for new buildings or for permanentimprovements or betterments made to increase the value of any property orestate," current law provides that the taxpayer may not deduct this expensecurrently, but instead must capitalize the expense and claim depreciation taxdeductions, which reflect the decline in value of this capitalized expense eachyear, in accordance with a fixed schedule.155 On the other hand, if the taxpayerincurs an expense merely to maintain or repair property, the taxpayer may beentitled to claim a full deduction immediately.5 6 While the relevant statutedirectly addresses certain expenditures, such as costs incurred to construct anew building, it does not directly address the deductibility of most businessexpenses. 157

IRS Simplification. In its publication regarding capitalization, the IRSprovides a general standard and several specific examples to assist taxpayers.The IRS states in Publication 535 (Business Expenses) that improvements,

154 INTERNAL REVENUE SERV., supra note 3, at 3.155 I.R.C. § 263(a) (2012); see also I.R.C. §§ 167, 168 (2012) (depreciation).156 Treas. Reg. § 1.162-4(a) (2014) (allowing the taxpayer to deduct amounts paid for "repairs and

maintenance to tangible property").157 I.R.C. § 263(a) (referring only to items for which "no deduction shall be allowed").

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which must be capitalized, are "generally major expenditures."'5 8 Afterproviding this general standard, the IRS then says that "[s]ome examples arenew electric wiring, a new roof, a new floor, new plumbing, bricking upwindows to strengthen a wall, and lighting improvements.'i5 9

Tax Law. This example represents an addition of administrative glossbecause the "major expenditure" standard does not appear in the tax law itselfWhether a taxpayer's purchase or investment represents an improvement hashistorically been the subject of significant judicial controversy, with littleuniformity in the decisions.160 In 2013, in order to "reduce the controversy inthis area," the Treasury issued final regulations that directly address whether ataxpayer's purchase of services or property is an improvement. 161 Rather thansetting forth a general standard for identifying an improvement, the regulationsstate that one must consider "all of a taxpayer's particular facts andcircumstances.'162 Specifically, the regulations provide that in order todetermine whether an expense is necessitated by normal wear and tear, whichis deductible, or a permanent improvement, which is subject to capitalization,the taxpayer should consider the condition of the property at issue immediatelyprior to and after its repair. 163 The regulations focus on whether theexpenditure enables the taxpayer to keep its asset in normal operatingcondition, but do not apply the "major expenditure" standard of IRSPublication 535. 164

In addition, the examples that the IRS provides in Publication 535 elide thecomplexity of the underlying law. For instance, IRS Publication 535 describes"new electric wiring" as an example of the general standard that"[i]mprovements are generally major expenditures."'l65 This example is cunious

158 INTERNAL REVENUE SERV., supra note 3, at 3.

159 Id.160 See, e.g., Moss v. Comm'r, 831 F.2d 833 (9th Cir. 1987) (allowing business deduction for expenses

incurred in conjunction with improvement plan); Cinergy Corp. v. United States, 55 Fed. Cl. 489 (2003)(allowing business deduction for encapsulation and removal of asbestos); Norwest Corp. v. Comm'r, 108 T.C.265 (1997) (disallowing business deduction for asbestos removal); Oberman Mfg. Co. v. Comm'r, 47 T.C. 471(1967) (allowing business deduction for roof removal, replacement, and expansion). As the Treasury hasacknowledged, this area has "resulted in considerable controversy between taxpayers and the IRS over manyyears." T.D. 9636, 2013-43 I.R.B. 331,332.

16i T.D. 9636, 2013-43 I.R.B. 331, 332.162 Id.

163 Treas. Reg. § 1.263(a)-30)(2)(iv) (2016).164 A review of the final § 263 regulations does not show use of the term "major expenditure." We

confirmed our reading of the regulations with a Westlaw search for the terms: "major expenditure" or "majorexpenditures" w/20 improvement.

165 INTERNAL REVENUE SERV., supra note 3, at 3.

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because there is a specific example in the regulations, which provides thatreplacement of as much as 30% of a building's electrical wiring does notrepresent a non-deductible restoration.166 As another illustration, while IRSPublication 535 broadly states that "new plumbing" is an example of thegeneral standard that "[i]mprovements are generally major expenditures,'167 aspecific example in the regulations describes how a taxpayer's replacement ofeight out of twenty sinks in bathrooms does not constitute an improvement. 168

Indeed, several of the specific examples of business expenses that IRSPublication 535 describes as improvements that must be capitalized are alsopresented in specific examples in the applicable regulations as repairs that maybe deducted immediately. 1

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Taxpayer Effects. By adding administrative gloss to the tax law in itstaxpayer publication regarding capitalization, the IRS may lead taxpayers toclaim tax positions that are different from the treatment required by currentlaw.

Returning to the example at the beginning of this Article, assume a chef,who owns his own restaurant, normally incurs a $10,000 annual expense torepair copper piping in his restaurant. In one year, the chef incurs a $20,000expense to repair the pipes as a result of a global shortage of copper. Applyingthe IRS's standard in IRS Publication 535, the chef may reasonably concludethat as a result of its magnitude, the $20,000 expense should be treated as a"major expenditure," which therefore is not deductible. However, applying theTreasury regulations' actual before-and-after approach, if the expense simplyenables the chef to repair normal wear and tear to his business assets, the chefshould be entitled to deduct the $20,000 expense, even if it is substantiallyhigher than the expense to repair the pipes in prior years. 170

Alternatively, assume the chef pays $5000 to completely replace a brickoven in his restaurant, a small amount compared to all of his annual businessexpenses of $200,000. Applying the "major expenditure" standard, it ispossible that the chef would claim a deduction for this amount currently, as theamount only represents 2.5% of his annual business expenses.171 A review ofthe Treasury regulations, however, shows that this expense does not represent

166 Treas. Reg. § 1.263(a)-3(k)(7) ex. 21 (2016).167 INTERNAL REVENUE SERV., supra note 3, at 3.168 Treas. Reg. § 1.263(a)-3(k)(7) ex. 23.169 See, e.g., Treas. Reg. § 1.263(a)-3(k)(7) ex. 21 (wiing), ex. 23 (plumbing).170 Treas. Reg. § 1.263(a)-30)(2)(iv) (2016).171 INTERNAL REVENUE SERV., supra note 3, at 3.

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mere maintenance, and instead, should be capitalized rather than deductedcurrently. 172

As these scenarios show, the administrative gloss regarding capitalizationin IRS Publication 535 can cause taxpayers to forego business expensedeductions that may be allowable under the relevant regulations or,alternatively, to claim tax deductions for expenses that must be capitalizedunder the relevant regulations. In either case, applying the IRS's simplificationmay cause taxpayers to deviate from the applicable tax law.

b. Exclusion of Gain from Sale of Principal Residence

The IRS's guidance to taxpayers regarding the exclusion from taxableincome of gain from the sale of a principal residence is another example of theIRS's addition of administrative gloss to the text of a statute or Treasuryregulation. 173 Under current law, individual taxpayers can exclude a portion oftheir realized gains upon selling their principal residence (up to $250,000 forsingle individuals and $500,000 for married couples), if they meet certainrequirements.174 Namely, taxpayers must have owned and occupied theresidence as their principal residence for at least two years during the five-yearperiod immediately prior to the sale. 175 If taxpayers cannot meet this ownershipand occupancy requirement, however, they can still receive partial gainexclusion if they can show that the reason for the sale is due to a "change inplace of employment, health, or ... [such other] unforeseen circumstances."'176

Based on this statutory language alone, taxpayers may have difficultydetermining whether their reason for selling their home qualifies as any of theprescribed circumstances.

IRS Simplification. To assist taxpayers in making the determination ofwhether their sale is due to a "change in place of employment, health, or...[such other] unforeseen circumstances," the IRS points to important factorsthat can help taxpayers make the determination. 177 In IRS Publication 523(Selling Your Home), for example, the IRS states that a sale may meet thestatutory standard if the taxpayer faced "significant financial difficulty

172 See Treas. Reg. § 1.263(a)-3(d) (2016) (requirement to capitalize improvements).173 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. NO. 523, SELLING YOUR HOME 5 (2015).174 I.R.C. §§ 121(a), (b) (2012).171 I.R.C. § 121(a).176 I.R.C. § 121(c)(2)(B).177 INTERNAL REVENUE SERV., supra note 173, at 4 5.

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maintaining the home."'7 8 As another important factor, the IRS describes thatthe sale may meet the statutory standard if the home "became significantly lesssuitable as a main home for [the taxpayer and the taxpayer's] family for aspecific reason."'179 The IRS's repeated use of the term "significant" indescribing the important factors provides taxpayers with a mental shortcut fordetermining whether their reasons for selling their home meet the statutorystandard of a sale due to a "change in place of employment, health, or...[such other] unforeseen circumstances.'1

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Tax Law. In creating this mental shortcut, however, the IRS has made asubtle, but potentially noteworthy, change to the relevant tax law. While IRSPublication 523 refers to "significant financial difficulty" and a "significantlyless suitable" main home, the applicable Treasury regulations instead use theterm "material" to describe these events.'8 ' For instance, in the Treasuryregulations that form the basis of the IRS's statements in IRS Publication 523,the Treasury provides that a taxpayer may claim the partial gain exclusion ifthe "taxpayer's financial ability to maintain the property is materiallyimpaired."'18 2 Likewise, these regulations offer taxpayers the ability to claimthe exclusion if the "suitability of the property as the taxpayer's principalresidence materially changes."'1 3 By substituting the word "significantly" inthe taxpayer publication for the word "materially," the IRS has added its owngloss to factors that otherwise appear almost verbatim in the Treasuryregulations.

Taxpayer Effects. The IRS's substitution of the word "significantly" for theword "materially" could have different effects on taxpayers' decisions.Whether the substitution causes taxpayers to be more likely to forego or claimthe principal residence gain exclusion likely depends on the taxpayer'ssophistication with the tax law and whether the taxpayer is relying on a taxadvisor.

For some taxpayers, especially those who do not have a sophisticated legalbackground, the change of terms may discourage them from claiming theprincipal residence gain exclusion. For example, a basic dictionary definition

178 Id. at 5 (emphasis added).179 Id. (emphasis added).180 I.R.C. § 121(c)(2)(B).181 Treas. Reg. § 1.121-3(b) (2016).182 Treas. Reg. § 1. 121-3(b)(3) (emphasis added).183 Treas. Reg. § 1. 121-3(b)(2) (emphasis added).

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of "material" includes terms such as "relevant,"184 while the definition of"significant" includes terms such as "momentous."85 It is possible that ataxpayer may perceive that a higher standard must be met in order to claim theprincipal residence gain exclusion than if the IRS had adopted the Treasuryregulations' "materially" language. The IRS publication may discourage such ataxpayer from claiming exclusions that the taxpayer may have taken based onthe regulations.

On the other hand, taxpayers with a sophisticated legal background (or whohave tax advisors) could conclude that the word "significantly" in the taxpayerpublication creates a lower standard than the word "materially." Whenaddressing corporations' internal financial reporting controls, the U.S.Securities & Exchange Commission has defined "significant deficiencies" aslesser problems than "material weaknesses." 186 Similarly, in mergeragreements, parties can exit signed deals if they discover a material, asopposed to a significant, adverse change, signifying again that, for corporatelaw purposes, material is a higher standard than significant.87 Using thisknowledge, taxpayers with a sophisticated legal background (or their advisors)may assume a lower standard is required by the taxpayer publication, relativeto the standard set forth in regulations.

As this example illustrates, by substituting its own administrative gloss forthe text in the applicable statute or regulations, the IRS may influencetaxpayers' views of the law in ways that may not be consistent with the actualtax law. Whether this causes taxpayers to be more or less likely to claim a taxbenefit, the outcome may be different from that which Congress or theTreasury intended.

c. Multiple Individual Retirement Account Rollovers

When adding administrative gloss to the tax law in taxpayer publications,the IRS can also make changes that unambiguously benefit taxpayers, asrevealed by a publication regarding individual retirement account (IRA)rollovers. Under current law, holders of IRAs, which are tax-favored savings

184 Material, MERRIAM-WEBSTER DICTIONARY, http://www.meriam-webster.com/dictionayy/material

(last visited Oct. 28, 2016).185 Significant, WEBSTER' S NEW WORLD COLLEGE DICTIONARY (5th ed. 2014).

186 17 C.F.R. § 240.12b-2 (2016); Definition of the Term Significant Deficiency, Release No. 33-8829, 72

Fed. Reg. 44924 (Aug. 9, 2007).187 See Andrew A. Schwartz, A "Standard Clause Analysis" of the Frustration Doctrine and the Material

Adverse Change Clause, 57 UCLAL. REV. 789, 829 30 (2010).

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accounts, can withdraw amounts from these accounts before reaching age59 1/2 without triggering tax liability and a 10% early withdrawal tax penaltyas long as the taxpayer deposits the withdrawn amounts directly into anotherIRA within sixty days (an "IRA rollover").'8 8 While the statute clearly statesthat a taxpayer may complete this rollover process only once each year withrespect to a particular IRA, it does not address whether a taxpayer who holdsmore than one IRA may complete multiple tax-free rollovers using multipleIRAs each year. 18 9

IRS Simplification. Starting in 1984, the IRS addressed this ambiguity byadding its own administrative gloss to the statutory language.190 For thirtyyears in IRS Publication 590 (Individual Retirement Arrangements (IRAs)),the IRS stated that multiple IRA rollovers in a single tax year were permissiblewithout resulting in tax or an early withdrawal tax penalty, even though thislanguage did not appear in the statute itself. 191 In stating this rule, the IRSparroted language from a proposed, but never finalized, Treasury regulationissued in 1981.192

Tax Law. The Tax Court ultimately disagreed with the rule the IRS had setforth in Publication 590. In Bobrow v. Commissioner,193 a prominent NewYork City tax lawyer, Alvan Bobrow, applied the tax treatment suggested bythe IRS in IRS Publication 590.194 Bobrow and his wife made multiple IRArollovers in 2008.19 Following the IRS's description of the tax law at the time,the taxpayers treated these transactions as tax-free rollovers.196 The Tax Courtrejected the taxpayers' tax treatment, ruling that the "plain language" of therelevant statute only permits taxpayers to participate in a single tax-free IRArollover each year. 197

Following Bobrow, the IRS revised the taxpayer publication to match theTax Court's interpretation.'98 However, the IRS also announced that it would

188 I.R.C. § 408(d)(3) (2012).189 I.R.C. § 408(d)(3)(B).190 See, e.g., INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. NO. 590, INDIVIDUAL

RETIREMENT ARRANGEMENTS (IRAs) 25 26 (2014).

191 Id. at25.192 Prop. Treas. Reg. § 1.408-4(b)(4)(ii), 46 Fed. Reg. 36,206 (July 14, 1981).193 No. 7022-11, T. C.M. 2014-21 (2014).194 Id. at3 5.195 Id. at4 5.196 Id. at 5.197 Id. at 12 13.198 I.R.S. Announcement 2014-15, 2014-16 I.R.B. 973, 973.

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"not apply the Bobrow interpretation ... to any rollover that involves an IRAdistribution occurring before January 1, 2015."' 19 Consequently, the IRS willnot challenge taxpayers who participated in multiple IRA rollovers in a singletax year prior to Publication 590's revision in 2015.200

Taxpayer Effects. This example demonstrates how, at times, the IRS'sadministrative gloss in taxpayer publications may be taxpayer favorable.Without question, the administrative gloss in IRS Publication 590 wasadvantageous to taxpayers, relative to the reading of the statute ultimatelyadopted by the Bobrow court. Moreover, as Bobrow exemplifies, taxpayer-favorable administrative gloss in IRS publications can even influence the taxplanning and reporting decisions of sophisticated taxpayers, such as corporatetax lawyers.20' This example also shows that when the IRS issues a taxpayer-favorable proposed Treasury regulation, it may restate this regulation in an IRSpublication.20 2 For most individuals, the restatement appears as though it iscurrent law, because the IRS publication provides no indication that its sourceis merely a proposed Treasury regulation.203

3. Failing to Fully Explain the Tax Law

A final category of simplexity consists of descriptions of the tax law in IRSpublications that omit discussion of relevant exceptions or that otherwise fail tofully explain the tax law. Several examples of these types of statements aredescribed below.

a. Bartering Deductions

One example of an IRS description that fails to fully explain the tax lawcan be found in the context of bartering transactions. A bartering transactioninvolves paying for a good or service with another good or service. Forinstance, if a dentist requires the services of an electrician in order to maintainequipment in her office, she may pay for the electrician's services by providing

199 Id. at 974.

200 Id; see also IRA One-Rollover-Per- Year Rule, INTERNAL REVENUE SERV., http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule (last updated Jan. 22, 2016).

201 Bohbrow, T.C.M. 2014-21, at 3 (explaining the taxpayer is "an attorney specializing in tax law').202 INTERNAL REVENUE SERV., supra note 190, at 25 26; see also Janet Novack, Gotcha! Tax Court

Penalizes IRA Rollover that IRS Publication Says Is Allowed, FORBES (Mar. 25, 2014, 11:47 AM), http://www.forbes.com/sites/j anetnovack/2014/03/25/gotcha-tax-court-penalizes-im-rollover-that-irs-publication-says-is-allowed/#1b2deefc22a3 (noting restatement of text in Prop. Treas. Reg. § 1.408-4(b)(4)(ii) in IRSPublication 590 prior to 2014).

203 INTERNAL REVENUE SERV., supra note 190, at 25 26.

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$1000 worth of dental services (a molar root canal) to the electrician.Taxpayers engaged in bartering transactions such as these face two taxquestions: (1) Must they include in income the goods or services that they havereceived; and (2) may they deduct from income the goods or services that theyhave provided?

IRS Simplification. The IRS addresses bartering exchanges in severaltaxpayer publications.20 4 Regarding the first question, inclusion in income, inIRS Publication 525 (Taxable and Nontaxable Income), the IRS states thattaxpayers who receive property or services in a barter exchange "must includein [their] income, at the time received, the fair market value of property orservices .. receive[d] in bartering."205 In other words, this statement clearlysays that property or services received must be included in income. Regardingthe second question, deductibility, the IRS provides an equally clear statementof the tax law. Specifically, in IRS Publication 535, the IRS states:

Payments in kind. If you provide services to pay a business expense,the amount you can deduct is limited to your out-of-pocket costs. Youcannot deduct the cost ofyour own labor.206

This statement unambiguously informs taxpayers that they may not claim anytax deduction for the fair market value of their own labor in a barter exchange.Applying this description of the tax law to the earlier example, the dentistwould have to include in income the $1000 of electrical services received, butwould not be entitled to claim an ordinary and necessary business expense forthe $1000 worth of dental services she provides, since the dental services sheprovides would be the "cost of [her] own labor."

Tax Law. The IRS's statement regarding a taxpayer's obligation to includein income the fair market value of services received in a barter exchange iscorrect. Taxpayers are required to include in income not only cash received,but also "services, meals, accommodations, stock, or other property."20 7 Forthis reason, the dentist who receives electrical services clearly must include the$1000 of electrical services received in income.

The IRS's statement regarding a taxpayer's inability to deduct the cost ofher own labor would be correct if the taxpayer did not include the value of

204 See INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. No. 525, TAXABLE AND NONTAXABLE

INCOME 20 (2015) [hereinafter PUBLICATION 525]; INTERNAL REVENUE SERV., supra note 3, at 4.205 PUBLICATION 525, supra note 204, at 20.206 INTERNAL REVENUE SERV., supra note 3, at 4 (emphasis added).207 Treas. Reg. § 1.61-1(a) (2016).

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services received in income. For instance, imagine that the dentist andelectrician exchanged labor of equal value. The dentist also had to purchasesome materials to provide the electrician with the molar root canal. Imaginefurther that, despite the clear tax law regarding including the electrical servicesin income, the dentist fails to include in income the electrical services received.In this case, the dentist's deduction should be limited to her out-of-pocketmaterial costs, which, when added onto the value of the services she provided,exceeded the value of the electrical services received. Put differently, if thedentist ignored the inclusion of labor income, she should have to ignore thededuction of labor costs as well.

However, when discussing the deduction question, the IRS fails to explainthat as long as (1) the dentist includes in gross income the $1000 fair marketvalue of the electrical services that she receives, and (2) the electrical servicesare ordinary and necessary expenses for her trade or business as a dentist, sheshould be able to deduct $1000 for the fair market value of the dental servicesshe provides to the electrician (on top of any out-of pocket costs). To illustratethe reasoning underlying this result, if the electrician and the dentist had eachperformed their respective services for one another and also exchanged checksfor $1000, the dentist would be required to include the $1000 received fromthe electrician and would be entitled to an ordinary and necessary businessexpense deduction for the $1000 provided to the electrician even though theexchange of checks of equivalent amounts would have been meaningless.

Both judicial decisions and internal IRS memoranda support the deductionfor the value of bartered services when the taxpayer includes the fair marketvalue of services received. When addressing barter exchanges in TaxpayerAdvice Memoranda, upon the request of an IRS director or area director, theIRS Office of Chief Counsel has stated that "[w]hen a taxpayer engages in abarter transaction, the transaction should be treated as if the taxpayer sold itsown product or services at fair market value and then paid fair market value forthe product or services of the other party."208 In support of this rule, thememorandum cites several judicial decisions, including United States v.General Shoe Corp.209 and Estate of Wood v. Commissioner.210 Applying thistreatment to the example at hand, the dentist should be treated as selling herdental services to the electrician, resulting in an inclusion in income of $1000,

208 I.R.S. Tech. Adv. Mem. 200147032 (Nov. 23, 2001).209 282 F.2d 9 (6th Cir. 1960).210 39 T.C. 1 (1962).

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and then using the proceeds of this hypothetical sale to purchase theelectrician's electrical services, resulting in an ordinary and necessary businessexpense deduction of $1000.

Taxpayer Effects. The IRS's presentation of the tax law regarding barteringexchanges nonetheless suggests to taxpayers that they are not entitled toordinary and necessary business expense deductions for the value of theirservices provided. Many tax advice websites, popular press stories, and othertaxpayer resources simply restate the IRS's unqualified statement fromPublication 535 that taxpayers are not entitled to deduct the value of their ownlabor.2 11 By failing to more fully address the deductibility question inconjunction with an inclusion in income, as the IRS has done in internalmemoranda,212 the IRS publications present a potentially misleadingdescription of the tax law. While this omission has not received substantialpublic attention, some accountants have noted that the IRS's description ofbartering transactions reveals that the IRS will "fully disclose ... when toreport income," but will leave it "up to [taxpayers] ... to discover [their]deductions.'" 213 Moreover, the importance of this IRS simplification, ifunchanged, is only likely to grow as more taxpayers turn to barter websites,such as TaskRabbit,214 Tradeaway,215 and other social media services to usebartering in order pay for business expenses.216

b. Early Individual Retirement Account Distributions

Another example of an IRS description that does not fully explain the taxlaw can be found in the IRS publication regarding early distributions fromIRAs. 2 17 As discussed earlier, if taxpayers under age 59 1/2 withdraw fundsfrom an IRA, such as a § 401(k) plan, they must pay tax on the withdrawnamount plus a 10% early withdrawal tax penalty, unless certain exceptions

211 See infra note 256 and accompanying text.212 I.R.S. Gen. Counsel Mem 200411042 (Feb. 6, 2004); I.R.S. Tech. Adv. Mem 200147032 (Nov. 23,

2001).213 William Brighenti, Tax Deductions of Barter Exchanges: Barterer Beware of IRS's Posture on Barter

Tax Deductions, ACCOUNTANTS CPA HARTFORD, CONNECTICUT, LLC, http://www.cpa-connecticut.com/barter-tax-deductions.html (last visited Oct. 2, 2016).

214 TASKRABBIT, https://www.taskrabbit.com/ (last visited Oct. 2, 2016).215 TRADEAWAY, http://www.tradeaway.com/ (last visited Oct. 2, 2016) ("The World's Largest Barter

Site! Where CASH is NOT always King!").216 For further discussion, see Shu-Yi Oei & Diane M. Ring, Can Sharing Be Taxed?, 93 WASH. U. L.

REv. 989 (2016).217 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. No. 590-13, DISTRIBUTIONS FROM

INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs) 24 25 (2015).

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apply.218 One such exception is that the taxpayer receives distributions from anIRA in the form of an annuity. Specifically, current law provides that the 10%early withdrawal tax penalty does not apply to "part of a series of substantiallyequal periodic payments (not less frequently than annually) made for the life(or life expectancy) of the employee or the joint lives (or joint lifeexpectancies) of such employee and his designated beneficiary."219 Taxpayerswho desire to withdraw funds from an IRA using an annuity arrangement,therefore, must determine whether they will satisfy the distributionrequirements for such an annuity.

IRS Simplification. In providing guidance to taxpayers regarding this issue,the IRS states in IRS Publication 590-B:

You can receive distributions from your traditional IRA that are partof a series of substantially equal payments over your life (or your lifeexpectancy), or over the lives (or the joint life expectancies) of youand your beneficiary, without having to pay the 10% additional tax,even if you receive such distributions before you are age 59 1/2. Youmust use an IRS-approved distribution method and you must take atleast one distribution annually for this exception to apply.220

The IRS then goes on to describe three distribution methods, which the IRSpreviously approved as distribution methods in IRS Notice 89-25.221 Moreover,the taxpayer publication clearly implies that these are the only IRS-approveddistribution methods. The publication does so by describing one of the threemethods, and then explaining that there are "two other IRS-approveddistribution methods that you can use," followed by a short discussion ofthem.222 By negative implication, there would appear to be no other IRS-approved distribution methods. As a result, the publication clearly implies totaxpayers that, in order to meet the statutory annuity exception, they must useone of these three distribution methods.

Tax Law. While the IRS publication references three distribution methodsthat it has pre-approved and implies that taxpayers must use one of these tomeet the statutory annuity exception, in reality, the IRS has allowed taxpayersto use additional distribution methods. In several private letter rulings, the IRS

218 I.R.C. §§ 72(t)(1), 408(d)(1) (2012).219 I.R.C. § 72(t)(2)(A)(iv).220 INTERNAL REVENUE SERV., supra note 217, at 25 (emphasis added).221 id.

222 Id.

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has approved alternative distribution methods proposed by taxpayers.223

Further, in more technical guidance than IRS publications, the IRS hasconceded that taxpayers may use distribution methods other than these threemethods. In this technical guidance, the IRS states that the three methods ofdistribution "do not represent the only distribution methods which will satisfythe requirements of section 72(t)(2)(A)(iv) of the Code."224 This concession, ofcourse, is in direct contravention of IRS Publication 590-B.

Taxpayer Effects. This example illustrates how the IRS may create safeharbors in administrative guidance and then later, in taxpayer publications,imply-or explicitly state-that these safe harbors represent the only possiblemethods for complying with the tax law. By omitting discussion of otherdistribution possibilities and including the words "you must, 225 the IRSdramatically limits the potential distribution options that most taxpayers willconsider. Many taxpayers will only participate in annuity distributions that useone of the "IRS-approved" distribution methods. Others may choose not toparticipate in annuity arrangements if they do not comply with one of the IRS-approved methods. And some taxpayers who participate in IRA annuities thatdo not match one of the IRS-approved distribution methods may pay the 10%early withdrawal tax penalty, even though they are not necessarily required todo so under the tax law.226

c. Characterization ofActivity as Profit-Seeking

A final example of an IRS simplification that does not fully explain the taxlaw is the IRS's description of factors that determine whether an activityrepresents a profit-seeking activity.227 Taxpayers are entitled to claimdeductions for ordinary and necessary expenses of their profit-seekingactivities.228 However, if taxpayers pursue activities that are "not engaged infor profit," such as hobbies and other recreational pursuits, they may onlydeduct expenses to the extent of any income actually generated by theseactivities.229 A key question a taxpayer faces when determining whether toclaim ordinary and necessary expenses, consequently, is whether the

223 See, e.g., I.R.S. Priv. Ltr. Rul. 201030038 (May 5, 2010); I.R.S. Priv. Ltr. Rul. 200943044 (Jul. 28,

2009); I.R.S. Priv. Ltr. Rul. 9008073 (Nov. 30, 1989).224 I.R.S. Priv. Ltr. Rul. 9008073 (Nov. 30, 1989).225 E.g., INTERNAL REVENUE SERV., supra note 217, at 25.

226 I.R.C. § 72(t) (2012).227 INTERNAL REVENUE SERV., supra note 3, at 5.

228 I.R.C. § 162(a) (2012).229 I.R.C. § 183(a) (2012); Treas. Reg. § 1.183-2(b) (2016).

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taxpayer's activity constitutes a profit-seeking activity, or, alternatively, anactivity "not engaged in for profit." 230

IRS Simplification. The IRS advises taxpayers that a variety of factorsaffect whether an activity should be classified as profit seeking. In IRSPublication 535 (Business Expenses), the IRS includes a list of relevant factorsthat taxpayers should consider, such as whether: "[y]ou carry on the activity ina businesslike manner"; "[y]ou depend on the income for your livelihood";"[y]our losses are due to circumstances beyond your control (or are normal inthe start-up phase of your type of business)"; "[y]ou change your methods ofoperation in an attempt to improve profitability"; and "[y]ou were successful inmaking a profit in similar activities in the past."231

Tax Law. Several of the factors in the IRS's taxpayer publication differfrom those listed in the applicable Treasury regulations. For example, the IRSlists as a factor in IRS Publication 535 whether "[y]ou depend on the incomefor your livelihood."232 The Treasury regulations' discussion of this factor ismore nuanced. The Treasury regulations label this factor as "[t]he financialstatus of the taxpayer," and describe, for instance, that:

Substantial income from sources other than the activity (particularlyif the losses from the activity generate substantial tax benefits) mayindicate that the activity is not engaged in for profit especially if thereare personal or recreational elements involved.233

Compared to this more nuanced approach, the taxpayer publication's simplersummary is a much starker inquiry.

Taxpayer Effects. By not fully explaining the factors in the Treasuryregulations, the IRS may cause some taxpayers to conclude that an activityrepresents a hobby, while the Treasury regulations may provide the taxpayerwith greater latitude to characterize it as a business.

For instance, imagine that a stay-at home father has recently started a classfor children at the local town center. The class will guide children in how tolaunch their own, self-designed initiatives (such as recycling programs or evenmoney-making businesses). While parents will pay for their children to attendthe class, this activity still results in various expenses, which the father will pay

230 I.R.C. § 183(c) (2012).231 INTERNAL REVENUE SERV., supra note 3, at 5.

232 Id.233 Treas. Reg. § 1.183-2(b)(8) (2016).

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for out of pocket. On a net basis, the father hopes he will make a little profitfrom the class, but, regardless, almost all of his family's income will still comefrom his wife's job.

If the father looks solely to IRS Publication 535 to determine whether hisexpenses from running this class are deductible, he may conclude they are not.He does not "depend" on the income from the class for his "livelihood." '234 Heexpects to make only a small amount from the class, and his wife's salary willcontinue to provide for his family's needs. However, if the father applied themore nuanced inquiry from the Treasury regulations, he may reach a differentconclusion. While he does have substantial sources of income from otheractivity (his wife's job), the expenses from the activity are not generatingsubstantial tax benefits.23 5 There is also a strong argument that the class doesnot have substantial personal or recreational elements involved.23 6 Manypeople provide classes (such as tutoring or music lessons) to local children as asource of additional income, rather than as a form of personal recreation.Applying the Treasury regulation's fuller explanation, therefore, the father maybe more likely to conclude that running the class is a profit-seeking activity,yielding more beneficial tax treatment for his expenses. In terms of aggregateimpact, especially in light of the vast number of activities that taxpayers couldpotentially claim to be "engaged in for profit," IRS descriptions that causetaxpayers to conclude their activities are hobbies can yield substantial revenuesavings for the government and reduced tax enforcement and litigation costsfor the IRS.

C. Taxpayer Exposure to Simplexity

Individuals regularly encounter the types of simplexity described abovewhen making decisions regarding whether and how to comply with the tax law.According to the IRS, approximately 56% of individuals retain the assistanceof third-party advisors to prepare their tax returns and 34% of individuals usetax preparation software.237 The remaining 10% of individuals prepare theirannual tax returns without assistance.238 As this subpart demonstrates, both

234 INTERNAL REVENUE SERV., supra note 3, at 5.235 Treas. Reg. § 1.183-2(b)(8).236 Id.237 Protecting Taxpayers from Incompetent and Unethical Return Preparers: Hearing Before the S.

Comm. on Fin., 113th Cong. (2014) (testimony of John A. Koskinen, Comm'r of Internal Revenue Service),htt://www.finance senate.gov/imo/media/doc/Koskinen /20Testimony.pdf

238 Id.

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individuals who prepare their annual tax returns without assistance and thosewho rely on third-party advisors or other sources for assistance are exposed tosimplexity in IRS publications.

Taxpayers who prepare their own individual income tax returns relyextensively on IRS publications, and IRS simplifications embedded withinthem. Individuals who do not wish to pay an accountant or purchase softwareoften rely on IRS publications "to assist [them] in meeting their taxobligations. " 239 For example, the instructions that accompany most IRS forms,such as IRS Form 1040, frequently refer taxpayers to IRS publications thataddress the content of the forms using plain language.240 Further, in 2014, 83%of taxpayers reported that IRS publications were "very or somewhat valuable"as a source of tax advice or information.241 Indeed, taxpayers vocally criticizedthe IRS's 2015 announcement that, as a result of budget cuts, the agency wouldno longer deliver printed copies of IRS publications to public libraries.242

Likewise, taxpayers who rely on other individuals or services to preparetheir tax returns are also affected by the IRS simplifications. These taxpayersconsult sources such as commercial tax preparation software, tax accountantsand tax return preparers, secondary source publications, and the IRS itself Asthe following examples illustrate, taxpayers who receive advice from thesesources are often indirectly exposed to the simplexity of IRS publications.

Tax Preparation Software. Each year, over forty million U.S. taxpayers usecommercial tax preparation software, such as Intuit's TurboTax, to completeand file their tax returns.243 In addition to noting that "IRS publications canhelp fill in the gaps and ease your frustrations when preparing your taxreturn," 244 TurboTax provides users with access to more than 700 tax

239 TREASURY INSPECTOR GEN. FOR TAX ADMIN., REFERENCE No. 2011-40-070, THE INTERNAL REVENUE

SERVICE PROVIDES HELPFUL AND ACCURATE TAX LAW ASSISTANCE, BUT TAXPAYERS EXPERIENCE LENGTHYWAIT TIMES TO SPEAK WITH ASSISTORS 21 (2011).

240 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, CATALOG NO. 2481 IV, 1040 INSTRUCTIONS 18

(2015) ("For details, see Pub. 501.").241 IRS OVERSIGHT BOARD, 2014 TAXPAYER ATTITUDE SURVEY 15 (2014).242 See Tax Forms Outlet Program (TFOP), INTERNAL REVENUE SERV., https://www.irs.gov/uac/tax-

forms-outlet-program-tfop (last updated Oct. 3, 2015). While taxpayers may still print copies of the IRSpublications themselves at public libraries for a per-page fee, some critics responded that the change in policywill result in an "unfair burden" and "inconvenien[ce]." James Niedzinski, IRS Cuts Back on Distribution ofTax Forms, EAGLE-TRiBUNE (Jan. 23, 2015), http://www eagletribunecorm/news/new hampshire/irs-cuts-

back-on-distribution-of-tax-forms/article al 3fc2 lf-68d8-5507-9653-5c544fec3eea.html.243 See Protecting Taxpayers, supra note 237.244 Video: What Are IRS Publications?, INTUIT TuRBOTAX, https://turbotax.intuit.com/tax-tools/tax-

tips/IRS-Tax-FormsVideo What-Are-IRS-Publications-/INF14668.html (last visited Oct. 2, 2016).

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professionals who frequently restate the IRS simplifications through online andtelephone advice.245 For instance, just as the IRS notes that refinancing pointsrelated to a home mortgage must be amortized without acknowledgingcontradictory case law,246 TurboTax advisors inform users that "you candeduct the points you pay to get the new loan over the life of the loan."247 Asanother example, TurboTax advisors repeat the IRS's administrative gloss thatan ordinary and necessary business expense is one that is "common andaccepted" in the taxpayer's industry, despite the lack of uniform judicialtreatment of this issue.248 TurboTax states that users' expenses "must be whatthe IRS calls 'ordinary and necessary.' This means the item or service iscommon and accepted in your line of work and is appropriate and helpful toyour job." 249 The reference to the IRS leaves little doubt that, in crafting thisdescription of the test for the deductibility of business expenses, TurboTaxadvisors have drawn directly on IRS Publication 535, discussed earlier.250 Asthese examples reveal, taxpayers who use TurboTax often receive advice thatreiterates IRS simplifications.

The fact that commercial tax preparation software, like TurboTax, oftenreiterates IRS simplifications is not surprising. The firms that sell suchsoftware have incentives to encourage their customers to adopt the IRS'sapproach. Intuit, for instance, provides purchasers of TurboTax with an"[a]udit [s]upport [g]uarantee. "251 The TurboTax user agreement provides thatif the user is subject to an IRS audit, Intuit will provide free audit guidancefrom a trained tax professional, who will answer all audit-related questions.252

If the user is not satisfied with this audit support guidance, Intuit will refundthe user's purchase price paid for the TurboTax software.25 3 As a result of thisguarantee, increased IRS audits of TurboTax users pose a threat to Intuit's

245 See Margaret Collins, Turbo Tax Offers Live Tax Advice to Lure Clents from H&R Block, BLOOMBERG

TECH. (Feb. 14, 2012, 12:01 AM), htt://www.bloomberg.com/news/articles/2012-02-14/turbotax-army-of-tax-guides-offers-free-aid-to-lure-clients-from-h-r-block.

246 See supra notes 136 41 and accompanying text.247 Deducting Mortgage Interest FAQs, INTUIT TURBOTAX, https://turbotax.intuit.com/tax-tools/tax-

tips/Home-Ownership/Deducting-Mortgage-Interest-FAQs/1NF12051.html (last visited Oct. 2, 2016)(emphasis added).

248 See supra notes 119 26 and accompanying text.249 Jeremy Vohwinkle, What Are Job-Related Tax Deductions?, INTUIT TURBOTAx (Apr. 9, 2012),

http://blog.tutbotax.intuit.com/tax-deductions-and-credits-2/what-are-job-related-tax-deductions-9307/.250 See supra notes 115 18 and accompanying text.251 Audit Support Guarantee, INTUIT TuRBoTAx, https://tutbotax.intuit.com/corp/guamnteesjsp (last

visited Oct. 2, 2016).252 Id.253 Id.

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bottom line. Since taxpayers who adopt the IRS's approach likely face a lowerrisk of IRS audit, Intuit has a strong economic motivation to encourage itsusers to adopt these positions, even when they are less taxpayer-favorable thanthe underlying tax law.

Tax Accountants and Return Preparers. While certified public accountantsand other tax return preparers are more knowledgeable than individuals withno tax expertise, they are nonetheless also affected by the simplexity in IRSpublications. For example, while some accountants have questioned254 theIRS's statement in IRS Publication 535 that taxpayers "cannot deduct the costof [their] own labor"255 in bartering exchanges, many have repeated thisstatement in their advice to current and prospective clients. Some rephrase theIRS simplification (e.g., "[t]he cost of your own labor is not a businessexpense-because you did not pay anyone for it" 256). Others repeat the IRS'sown language that deductions are limited to out-of-pocket expenses rather thanlabor.257 As another illustration, some tax accountants reiterate the IRS'sstatement in IRS Publication 523, described earlier,258 that taxpayers may onlyclaim the principal residence gain exclusion if they have experienced a"significant financial difficulty. " 259 These advisors' use of the term"significant," rather than the Treasury regulations' use of "material," confirmsthat they have parroted the language from the IRS publication in their advice toclients.260 And certified public accountants regularly define terms and explainissues by referring clients to specific IRS publications.26' Third-party taxadvice, especially from accountants and tax return preparers, thus frequentlyreinforces the simplexity of IRS publications.

254 See, e.g., Brighenti, supra note 213.255 Supra note 206 and accompanying text.256 Where Do I Deduct All My Business Expenses?, IRS HELP MICHAEL PLAKS, EA (Mar. 23, 2016),

http://www.michaelplaks.com/business-taxes/business-expenses.257 See, e.g., Rachel Brenke, Tax Issues with Bartering Photography Services, THELAWTOG (Mar. 24,

2015), http://www.thelawtog.com/tax-issues-with-barteing-photography-services/; Tips for Bartering,TAxACT, https://www.taxact.com/tax-information/tax-topics/tips-for-bartering.asp (last visited Oct. 2, 2016).

258 See supra notes 173 80 and accompanying text.259 INTERNAL REVENUE SERV., supra note 173, at 5; see, e.g., WilIMc1, Comment to Would My Work

Situation Qualifyfor House Sale Tax Exemption?, H&R BLOCK: THE COMMUNITY (Aug. 16, 2015, 1:18 PM),http://conununity.hiblock.com/t5/All-Things-Tax/Would-my-work-situation-qualify-for-House-Sale-tax-

exemption/td-p/67789#.Vg3UQVIVhHx.260 See supra notes 177 80 and accompanying text.261 See, e.g., Jason Blumeron, What Expenses Can I Deduct in My Business (Per the IRS)?, Part I of 3,

BLUMER (Jun. 24, 2014), https://www blumercpascoim/blog/what-expenses-can-i-deduct-in-my-business-per-

the-irs-part-l-of-3 ("These are define[d] in Publication 535 from the IRS.').

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Structural causes also explain why many accountants and tax returnpreparers rely on IRS publications. Accountants and tax return preparersreceive professional training that relies heavily on IRS publications. Thecertification exam for certified public accountants frequently includesquestions regarding specific IRS publications.262 Likewise, in creating a"return preparer competency exam" for individual tax return preparers, the IRSrecently announced that it would allow individuals taking this exam to have"electronic access to IRS Publication 17, Your Federal Income Tax, during theproceedings.'" 263 And every IRS-enrolled agent, the highest credential awardedby the IRS, must demonstrate extensive knowledge of IRS publications.Individuals who seek this special status must pass a three-part comprehensiveexam prepared by the IRS. 64 The IRS advises individuals taking thisexamination to review several IRS publications, including IRS Publication 17(Your Federal Income Tax) and IRS Publication 535 (Business Expenses),among several others.265 As a result of their training and certificationrequirements, accountants and tax return preparers regularly consult IRSpublications as a source of the tax law.

Secondary Sources. Taxpayers are also indirectly exposed to the IRS'sstatements in IRS publications through secondary source tax advicepublications. For example, J.K Lasser 's Your Income Taxes, one of the best-selling annual tax return preparation publications, contains dozens ofreferences to specific IRS publications in support of the guidance described.266

Other popular tax return preparation publications contain direct references tothe IRS simplifications (e.g., "According to IRS Publication 535 . . . , abusiness expense must be . . . ,,).267 And even the secondary resources that taxaccountants and lawyers use restate IRS simplifications as though they are law.As an example, Bloomberg BNA's Tax Management Portfolios, which areoften consulted by tax professionals, contain statements such as "given the IRS

262 See, e.g., CPA CPE Tax Courses, PLATINUM PROF. SERVS., https://www.platinumcourses.com/course/

category.phpid-1 (last visited Oct. 2, 2016) ("Using actual IRS Publications, a series of 145 questions willguide you through each tax subject .. ").

263 Michael Belier, IRS Will Hold Off on Preparer Fingerprinting Requirements, 133 TAX NOTES 808,

809 (Nov. 14, 2011).264 Enrolled Agent Information, INTERNAL REVENUE SERV., https://www.irs.gov/tax-professionals/

enrolled-agents/enrolled-agent-information (last updated Apr. 22, 2016).265 See INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. NO. 1470, PACKAGE FOR THE SPECIAL

ENROLLMENT EXAMINATION 7 (1993).266 J.K. LASSER'S YOUR INCOME TAX 2014 (Prof'l ed. 2013).267 MARTHA MAEDA, HOW TO OPEN & OPERATE A FINANCIALLY SUCCESSFUL INDEPENDENT RECORD

LABEL 84 (2012).

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position announced in IRS Pub. 936, caution is warranted in deductingcapitalized points where the same lender provides the new financing."268 Thesimplexity that originates in IRS publications thus spreads to individualsthrough influential secondary source publications.

IRS Taxpayer Assistance. Finally, IRS representatives who directly assistindividuals in preparing their annual tax returns reiterate descriptions from IRSpublications. IRS representatives who assist taxpayers at taxpayer assistancecenters and over the IRS help line receive special training in the "publicationmethod.,269 When individuals approach these representatives with a questionabout their tax returns, the publication method requires the representatives to"obtain the appropriate publication, discuss specific information related to thetopic, ask appropriate questions to obtain facts, and respond to the taxpayer'sissue or question." 27° When addressing individual taxpayers' requests, theserepresentatives quote from or refer individuals to IRS publications that containIRS simplifications.271 Further, in the past, if so requested by taxpayers, IRSrepresentatives at taxpayer assistance centers would complete qualifiedindividual taxpayers' returns for them.272 When completing such returns, theIRS required its taxpayer assistance representatives to use existing IRSpublications when determining taxpayers' eligibility for various deductionsand credits.

273

As this discussion illustrates, individual taxpayers are continually exposedto the simplexity in IRS publications, whether they prepare their tax returnsdirectly, utilize tax return preparation software, or seek assistance fromaccountants and professional tax return preparers. This pervasive exposuremeans that the IRS has significant power to shape taxpayers' views of the taxlaw through IRS publications. Whether and how the IRS should possess andexercise this power is an important question that the next Part will address.

268 Tax Implications of Home Ownership, TAX MGMT. PORTFOLIO (BNA) 594 (2013).269 See TREASURY INSPECTOR GEN. FOR TAX ADMIN., REFERENCE NO. 2004-40-025, IMPROVEMENTS ARE

NEEDED TO ENSURE TAx RETURNS ARE CORRECTLY PREPARED AT TAXPAYER ASSISTANCE CENTERS 11

(2003).270 Id.271 See TREASURY INSPECTOR GEN. FOR TAX ADMIN., supra note 239, at 21.

272 id.273 Id. Budget cuts have caused the IRS to suspend such programs temporarily. I.R.S. News Release IR-

2015-97 (July 15, 2015), https://www.irs.gov/pub/irs-news/IR-15-097.pdf

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III. Is SIMPLEXITY SOUND?

Should the IRS use plain language to explain complex, often ambiguoustax law to the public? As this Part argues, while simplexity offers a number ofpotential tax administration and compliance benefits, it can also threaten vitalvalues of democratic governance and fairness. Fundamentally, unearthing theconcept of simplexity lays bare a trade-off between understandability andaccurate representation of the law. While there is no simple way to resolve thistrade-off, recognizing that it exists makes it possible to evaluate whethersimplexity is too high or too low in a given situation. After highlighting thetrade-off at stake, this Part considers several strategies for making simplexitymore apparent (thereby making it easier to evaluate it in a given case), whichcan also help maximize the benefits of simplexity while minimizing itsdrawbacks. This Part then concludes by predicting the likely emergence ofsimplexity in several oft-discussed future tax compliance initiatives:government-prepared tax returns, interactive tax return filing, and increasedthird-party reporting.

A. Benefits

Simplexity offers a number of potential tax compliance and administrationbenefits: it enables the IRS to summarize complex tax law in understandableterms for many taxpayers, reveals the IRS's likely litigating positions to thepublic, and supports the government's efforts to raise tax revenue.

1. Tax Law in Plain Language

Where they describe the tax law accurately, IRS simplifications can helptaxpayers understand the tax law as it exists in the Internal Revenue Code,Treasury regulations, case law, and other authorities. For example, if anindividual receives a cash dividend from a public corporation, the individualwill need to determine whether he has held the stock long enough to receive apreferential tax rate on "qualified dividend income."'274 A review of theInternal Revenue Code will cause him to read multiple provisions in search ofthe answer and to insert figures from one statutory provision into the text ofanother provision.275 In IRS Publication 17 (Your Federal Income Tax),however, the taxpayer will read a clear distillation of the law, which statessimply that he must have "held the stock for more than 60 days during the 121-

274 I.R.C. § 1(h)(ll) (2012).275 I.R.C. § 1(h)(1 i)(B)(iii) (2012) (directing taxpayers to I.R.C. § 246(c)).

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day period that begins 60 days before the ex-dividend date." 276 This shortcutcan enable the taxpayer to complete his tax return more efficiently than if heconsulted the Internal Revenue Code directly, assuming he could even accessthe text. Further, this IRS simplification can streamline the inquiry for thirdparties who may be assisting taxpayers with their tax return filings, therebyreducing taxpayers' costs of filing.

2. Visibility into the IRS' Views of the Tax Law

IRS simplifications also reveal the IRS's views of the tax law to taxpayersand their advisors. Despite their limited status as legal authority,277 IRSsimplifications provide taxpayers with an advance view of how the IRS wouldlikely respond to a specific tax position during audits or litigation. Especiallyin situations where the statutory text is ambiguous, such as the meaning of"ordinary" business expenses under § 162(a) of the Code,278 IRSsimplifications provide insights about the IRS's probable reactions beforetaxpayers file their tax returns. Taxpayers can respond to IRS simplificationsby foregoing the tax position at issue, and the potentially resulting taxcontroversy, or conversely, by claiming the tax position and preparing tocontest the IRS's interpretation.

IRS simplifications can mirror and help amplify the IRS's duty to discloseinformation about the tax system in other contexts. Under § 6110 of the Code,the IRS is required to publicly disclose all "written detennination[s]," such asprivate letter rulings, tax-exempt determination letters, and technical advicememoranda, among others.2 79 Congress enacted this provision to prevent theIRS from creating "secret law" in internal communications and in private letterrulings, which would only be accessible to "a few major tax practitioners" whofrequently interacted with IRS officials.280 IRS simplifications can be seen asan extension of Congress's desire to prevent the IRS from shielding its own

276 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, PUB. No. 17, TAX GUIDE 2014, 65 (2015).

277 Taxpayers cannot rely on these statements as legal authority (though they may raise their reliance as a

defense to certain tax penalties, see Treas. Reg. § 1.6664-4(a) (2014)). See Adler v. Comm'r, 330 F.2d 91, 93(9th Cir. 1964); Miller v. Comm'r, 114 T.C. 184, 195 (2000); Zimmerman v. Comm'r, 71 T.C. 367, 371(1978). For a recent discussion, see Cauble, supra note 41. But see Shapiro, supra note 41 (offering contraryarguments).

278 See supra notes 112 26 and accompanying text.279 I.R.C. § 6110 (2012).280 OFFICE OF TAX POL'Y, DEP'T OF THE TREASURY, 1 REPORT TO THE CONGRESS ON SCOPE AND USE OF

TAXPAYER CONFIDENTIALITY AND DISCLOSURE PROVISIONS 27 (2000); see also S. REP. NO. 94-938, at 305 (2dSess. 1976).

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legal interpretations from public view. While many forms of writtendeterminations, such as Chief Counsel Advice memoranda, state the IRS'sview of the tax law in technical terms understandable to tax lawyers andexperienced accountants,281 IRS simplifications present the IRS's views to thepublic.

IRS simplifications can also help ensure that the IRS's own employeesadminister the law in accordance with high level, centralized views of it. Asscholars have argued, agencies function more effectively "when centralofficials can advise responsible bureaucrats how they should apply agencylaw. '282 The IRS has nearly 90,000 employees283 and IRS publications explainthe agency's view of the tax law to many of its employees who mustadminister the tax law. Whether the employees provide taxpayer servicethrough the IRS help line or review returns in field offices, the IRS regularlydirects these employees to IRS publications rather than the Internal RevenueCode or Treasury regulations.

3. Administration and Revenue Benefits

Last, IRS simplifications can reduce the cost of tax administration andpotentially result in increased tax revenue. As discussed previously, some IRSsimplifications can cause taxpayers to forego certain tax benefits or to refrainfrom pursuing aggressive tax positions. For example, taxpayers who followsome of the IRS simplifications discussed earlier may alter their tax planningbehavior by foregoing deductions for ordinary and necessary businessexpenses,284 amortizing mortgage refinancing points,285 capitalizing certainexpenditures,28 6 declining to enter into leveraged leases,287 forfeiting theprincipal residence gain exclusion,288 paying the 10% IRA early withdrawaltax penalty,28 9 foregoing deductions on barter exchanges,290 and refraining

281 See About IRS Written Determinations, INTERNAL REVENUE SERV., https://www.irs.gov/uac/About-

IRS-Written-Determinations (last updated Dec. 4, 2015).282 Peter L. Strauss, Publication Rules in the Rulemaking Spectrum: Assuring Proper Respect for an

Essential Element, 53 ADMIN. L. REv. 803, 808 (2001).283 See Jonathan H. Adler, How the IRS Has Changed Since 1974, WASH. POST: VOLOKH CONSPIRACY

(Apr. 2, 2014), https://www.washingtonpost.com/news/volokh-conspimcy/wp/2014/04/02/how-the-irs-has-changed-since-1974/?utm term-.e683f0d395a (discussing former IRS Chief Counsel Don Korb's speech).

284 See supra notes 127 29 and accompanying text.285 See supra notes 142 43 and accompanying text.286 See supra notes 165 72 and accompanying text.287 See supra note 153 and accompanying text.288 See supra notes 184 87 and accompanying text.289 See supra notes 217 26 and accompanying text.

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from claiming losses by characterizing an activity as a hobby rather than abusiness,291 among others. To the extent that these IRS simplifications andothers encourage taxpayers to adopt the IRS's interpretations of the tax lawdespite the existence of contrary legal authority, simplexity bolsters the IRS'sability to raise revenue and reduces its need to expend resources contestingalternative taxpayer positions.

In addition, some commentators have theorized that the IRS's customerservice efforts, including IRS simplifications, could generate feelings ofreciprocity toward the IRS among individual taxpayers, resulting in increasedvoluntary compliance. Scholars such as Kathleen DeLaney Thomas havecontended that by providing taxpayers with increased guidance and other"user-friendly" taxpayer services, the IRS may encourage taxpayers to reportand pay their tax liability correctly.292 Further, government officials havereported that if the IRS fails to provide adequate taxpayer service, including inIRS publications and other sources, individual voluntary compliance will erodeover time.293 These assertions suggest that the IRS's use of plain language, anact of taxpayer service, could cause some individual taxpayers to reciprocatethe IRS's service by increasing their own tax compliance.294

B. Threats

Despite the potential tax administration benefits of simplexity, it can alsopromote opacity rather than transparency regarding the tax law and lead toinequitable benefits and burdens among different taxpayers who act on IRSsimplifications in ways that, in each case, are unlikely to be policed effectivelyby administrative law.

1. Reduced Tax Transparency

In contrast to the objective of Sunstein and others of using plain languageto increase open government,29

1 simplexity can diminish, rather than promote,tax transparency. Tax transparency can be defined broadly as the government's

290 See supra notes 211 16 and accompanying text.291 See supra note 236 and accompanying text.292 Thomas, supra note 32.

293 NAT'L TAXPAYER ADVOCATE, supra note 9, at 36.

294 See, e.g., Susan Cleary Morse, The How and Why of the New Public Corporation Tax Shelter

Compliance Norm, 75 FORDHAM L. REV. 961 (2006); Dennis J. Ventry, Jr., Cooperative Tax Regulation, 41CONN. L. REV. 431 (2008). For a contrasting view, see Osofsky, supra note 38.

295 See supra notes 75 92.

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openness to the public regarding its tax rules, agency interpretations, decision-making processes, and enforcement practices.29 6 Simplexity can result inopacity rather than transparency of the tax law and tax administration in twoways. First, in terms of process, as a result of inadequate signaling of changes,explanations, and disclosure, the public cannot easily observe whether and whythe IRS has used simplifying language to recast the tax law. Second, in termsof effect, ironically, simplexity may obscure individuals' knowledge of theunderlying tax law, as it exists in the Internal Revenue Code, Treasuryregulations, and case law.

Changes. When the IRS simplifies the tax law in IRS publications, itprovides virtually no signal to the reader that it has made changes to theunderlying tax law or that it has described its own view of the applicable taxlaw. For example, the IRS does not indicate in IRS Publication 525 that itsexplanation regarding bartering deductions directly contradicts applicable taxlaw or the IRS's own internal memoranda on the topic.297 The absence ofsignals of changes to the underlying tax law in IRS publications differs starklyfrom government transparency in other areas. In both houses of Congress, billsthat amend the law must provide a "comparative print," which highlight howthe bills strike out existing text and insert new text.298 As one legislativeofficial has described the rationale for these rules, the "comparative print canbe of great aid in ascertaining the intended effect of amendatory legislation.'" 299

Similarly, when issuing final regulations, the Treasury explicitly describeschanges made to "previously issued guidance," including prior proposedregulations.30 0 Because these types of overt signals are not present in IRSpublications, many readers cannot observe that the IRS has made changes tothe tax law.

Explanation. In addition to failing to highlight when it has used an IRSsimplification to recharacterize the tax law, the IRS also fails to provide an

296 See JOHN RAWLS, A THEORY OF JUSTICE 14 15 (rev. ed. 1999); Mark Fenster, The Opacity of

Transparency, 91 IOWA L. REV. 885, 888 910 (2006); Frederick Schauer, Transparency in Three Dimensions,2011 U. ILL. L. REV. 1339; Jeremy Waldron, Accountability: Fundamental to Democracy 11 (N.Y. Univ. Sch.of Law Pub. Law & Legal Theory Research Paper Series, Working Paper No. 14-13, 2014), http://papers. ssm.com/sol3/papers.cfm?abstract id-2410812.

297 See supra notes 208 10 and accompanying text.298 See RICHARD S. BETH, CONG. RESEARCH SERV., How BILLS AMEND STATUTES (2003),

https://fas.org/sgp/crs/misc/RS20617.pdf (describing House Rule XIII, cl. 3(e)(1) (the "Ramseyer Rule") and

Senate Rule XXVI, 12 (the "Cordon Rule")).299 Id. at 2.

300 See, e.g., T.D. 9655, 2014-9 I.R.B. 541, 541-42 (2014) (Shared Responsibility for Employers

Regarding Health Coverage).

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explanation for the IRS simplification to the reader. The lack of an explanationagain differs from the government's actions in other tax contexts. For instance,following the enactment of tax legislation, the Joint Committee on Taxationissues a report that describes present law, the newly enacted provision, and,importantly, the reasons for change to existing tax law.3' The IRS alsoprovides significantly more explanation for its change in legal interpretationsand new policies in other publicly disclosed documents. When announcing anew legal interpretation through the issuance of a Revenue Ruling, the IRS notonly identifies the change, but also explains the rationale. For example, whenadopting a new interpretation of the terms "married" and "marriage" inRevenue Ruling 2013-17, the IRS explained that its motivation for the changewas to apply "the most natural reading" of the terms in light of the SupremeCourt's decision in United States v. Windsor.30 2 Similarly, when the IRSdetermines that it will not follow a particular judicial decision, it publiclyannounces its "nonacquiescence" and its rationale for this position in an Actionon Decision.30 3 While most individuals have far more direct contact with IRSpublications than with Revenue Rulings or Actions on Decision, IRSpublications offer no comparable explanation for the IRS's interpretations thatdiffer from underlying tax law or judicial decisions.

Disclaimer. Most IRS simplifications are unaccompanied by explicitdisclaimers from the IRS. The IRS provides a statement on the cover of IRSPublication 17 (Your Federal Taxes) that "the information given [by the IRS]does not cover every situation and is not intended to replace the law or changeits meaning."30 4 However, this disclaimer is not sufficient to alert taxpayers topotential changes to the tax law in many cases. First, the disclaimer quotedabove appears on the cover of IRS Publication 17, but does not appear in anyof the other IRS publications. As illustrated in Part II, such publicationscontain numerous IRS simplifications.30 5 Instead, these other publicationscontain introductory language such as the following from IRS Publication 535(Business Expenses): "This publication discusses common business expenses

301 See, e.g., JOINT COMM. ON TAXATION, JCS-2-13, GENERAL EXPLANATION OF TAX LEGISLATIONENACTED IN THE 112TH CONGRESS (2013).

302 Rev. Rul. 2013-17, 2013-38 I.R.B. 201 (2013).303 See, e.g., Actions Relating to Decisions of the Tax Court, 2013-32 I.R.B. (Aug. 5, 2013).304 INTERNAL REVENUE SERV., supra note 276, at 1.

305 See INTERNAL REVENUE SERV., supra note 3 (no disclaimer); INTERNAL REVENUE SERV., supra note

130 (no disclaimer); INTERNAL REVENUE SERV., supra note 173 (no disclaimer); INTERNAL REVENUE SERV.,supra note 190 (no disclaimer); PUBLICATION 525, supra note 204 (no disclaimer); INTERNAL REVENUE SERV.,supra note 217 (no disclaimer).

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and explains what is and is not deductible."30 6 Second, even though the IRSprovides a disclaimer in one IRS publication, it still fails to signal to the readerthat a specific statement deviates from the tax law or relevant case law. Indeed,even IRS Publication 17, which is 286 pages in length, contains only onedisclaimer that is not associated with any specific text.307 By contrast, when theIRS issues an Action on Decision, it refers to the relevant judicial decision inorder to focus the reader's attention on the issue in controversy.30 8

Additionally, when various secondary sources adopt IRS simplifications, theyprovide no disclaimer. As a result, the single disclaimer on the cover of IRSPublication 17 does little to illuminate specific IRS simplifications.

The effect of such opacity is that IRS simplifications can ironicallydecrease taxpayers' knowledge of the actual tax law, as it exists in the InternalRevenue Code, Treasury regulations, and case law. While taxpayers couldtheoretically reject statements in IRS publications and research the underlyingtax law, the purpose of these statements is to ensure that many taxpayers andadvisors need not access the underlying tax law to determine tax liability oranswer questions. Indeed, the lack of notice or explanation of the changes, andlimited disclosure, means that most taxpayers do not know that the IRSsimplifications differ from the underlying law.

Public knowledge of the government's actions in enacting and applying thelaw-including the tax law-is an essential feature of democracy.309 Bydiminishing the public knowledge of the tax law and tax administration,simplexity threatens two attributes of democratic governance: public debate ofthe government's laws and actions and accountability of the government to thepublic.

Simplexity inhibits the readiness of the public to debate the actual tax law.For example, while Congress included the terms "ordinary and necessary" in§ 162(a) to describe a broad group of expenses that may be deductedimmediately, the IRS's presentation of the definition of the term "ordinary"

significantly narrows the meaning of the law.310 Yet it is possible that Congress

306 INTERNAL REVENUE SERV., supra note 3, at 1 (emphasis added).307 See INTERNAL REVENUE SERV., supra note 276, at 1.

308 See Actions Relating to Decisions of the Tax Court, supra note 303 (statement of nonacquiescence

regarding Media Space, Inc. v. Comm'r, 135 T.C. 424 (2010), vacated, 477 Fed. Appx. 857 (2nd Cir. 2012)).309 See, e.g., Letter from Thomas Jefferson to Charles Yancey (Jan. 6, 1816) ("[I]f a nation expects to be

ignorant & free, in a state of civilisation, it expects what never was & never will be."); see also RAWLS, supranote 296; Schauer, supra note 296.

310 See supra notes 115 18 and accompanying text.

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intended to create ambiguity in enacting this statute in order to enable the IRSand courts to consider many types of expenses as qualifying for deductibility.As a result of the IRS simplification, public discussion and debate over themeaning of the terms in § 162(a) may start from a baseline of false claritycreated by the IRS rather than one of intentional ambiguity created byCongress.

Simplexity also prevents the public from holding Congress accountable forits tax laws, an important function of tax transparency.3 1' When the IRSpresents a seemingly clear depiction of complex tax law, the public may noturge Congress to revisit flawed statutes. For instance, one could argue that thevague standard set forth by Congress regarding what expenses must becapitalized may simply be inadministrable. 12 The extensive debate over thecapitalization rules and the voluminous regulations on the topic may suggest asmuch.313 However, by offering taxpayers mental shortcuts and rules of thumb,IRS simplifications create an end-run around such discussion. As a result,simplexity may prevent Congress from being held accountable for overlycomplex tax law.

Additionally, there are few opportunities for the public to hold the IRSaccountable for its role in creating IRS simplifications. Courts only focus onthem in litigation if a taxpayer claims reliance on a statement in an IRSpublication and the IRS disowns the statement. Even in such instances, courtsroutinely hold that the IRS cannot be held to its statements in IRS publications,and therefore do not evaluate them.3 14 Oversight institutions, such ascongressional committees, are unlikely to question IRS simplifications becausethe lack of public knowledge about them prevents the public scrutiny necessaryto engender outside review of the IRS.3 15 And, unlike with Treasuryregulations,316 no law requires the IRS to provide the public with a notice andcomment period for IRS publications.

311 For discussion of the accountability function, see Waldron, supra note 296. See also Fenster, supra

note 296, at 899 (framing transparency as empowering the public to "monitor government activity").312 See I.R.C. § 263 (2012) (disallowing a deduction for "[amny amount paid out for new buildings or for

permanent improvements or betterments made to increase the value of any property or estate").313 See supra notes 160 61.314 See supra note 277.315 For a contrasting example, see Robert Costa & Jose A. DelReal, Hearings Floated as Hill Republicans

Seize on Gruber Obamacare Comments, WASH. POST (Nov. 12, 2014, 1:30 PM), https://www.washingtonpost.corn/news/post-politics/wp/2014/11/12/hearings-floated-as-hll-republicans-seize-on-gruber-obamacare-

comments/.316 5 U.S.C. § 553(b), (c) (2012).

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A potential response to this criticism of simplexity is that its costs arejustified because it enables taxpayers to complete and file their tax returns. Forexample, scholars such as Michael Graetz,3 17 Kathleen DeLaney Thomas,3 18

and Lawrence Zelenak319 have argued that the tax law must not be so complexthat it prevents individuals from embracing their civic duty to report and paytheir taxes correctly. Yet when the IRS offers simplifying descriptions of thetax law, it may relieve other institutions, namely Congress or the Treasury, oftheir obligation to simplify and improve the actual tax law and to do so throughparticipatory and accountable processes. Simplexity thus often clashes withdemocratic values of transparency, accountability, and participation.

2. Unequal Benefits and Burdens

Advocates of plain language have argued that this form of communicationwill ensure that taxpayers have equal access to government programs andservices.32° Yet simplexity can have the opposite effect in the context of taxplanning. As discussed above, some IRS simplifications benefit thegovernment, while others benefit the taxpayer.321 As this subpart will show,sophisticated taxpayers can reject IRS simplifications that benefit thegovernment, while all taxpayers, sophisticated and unsophisticated alike, willgenerally follow IRS simplifications that favor taxpayers. As a result,simplexity creates unequal benefits and burdens.

Most taxpayers can and will adopt pro-taxpayer IRS simplifications. Forreasons discussed previously, most taxpayers will not realize that IRSsimplifications deviate from the underlying tax law, and therefore willunwittingly follow them.322 Sophisticated taxpayers may identify certain IRSsimplifications.323 However, even for such taxpayers, following pro-taxpayerIRS simplifications will be a safe option. While taxpayers cannot rely uponthese statements as a legal matter in court,324 most tax returns are neveraudited, much less litigated.325 As a result, most taxpayers who follow pro-taxpayer IRS simplifications will enjoy the benefit of them without any IRS

317 GRAETz, supra note 72.318 Thomas, supra note 32.319 Zelenak, supra note 36.

320 See supra notes 87 90 and accompanying text.321 See supra Part III.B.322 See supra Part III.B. 1.323 See infra text accompanying notes 328 34.324 See supra note 277 and accompanying text.325 See SarahB. Lawsky,Modeling Uncertainty in Tax Law, 65 STAN. L. REV. 241, 249 50 (2013).

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challenge. As examples such as Bobrow326 reveal, even in the rare instance inwhich the IRS challenges a taxpayer for following a pro-taxpayer IRSsimplification and wins, the IRS will only face pressure to concede the issue asto other taxpayers until the publication is changed.327 As a result, it is rare forthe IRS to audit and challenge a taxpayer's adoption of a pro-taxpayer IRSsimplification. Sophisticated and unsophisticated taxpayers alike therefore willgenerally follow and get the benefit of pro-taxpayer IRS simplifications.

Sophisticated taxpayers, however, possess the unique ability to reject IRSsimplifications that benefit the government. Sophisticated taxpayers havegreater access to sound tax guidance, and are therefore less likely to followtaxpayer-unfriendly guidance offered by the IRS.328 While a wide swath oftaxpayers, even sophisticated taxpayers and their advisors, are exposed to IRSsimplifications,329 sophisticated taxpayers (or their advisors) are more likely tolook beyond IRS publications and examine the underlying Internal RevenueCode, Treasury regulations, and case law. They are also more likely to haveaccess to a broader set of IRS administrative guidance, which may providetaxpayers with support to reject an IRS simplification that benefits thegovernment.

Consider the example of the IRS simplification regarding annuitydistributions that avoid the early IRA distribution penalty.330 As discussedpreviously, in technical guidance, the IRS has conceded that the three methodsof distribution set forth in the IRS publication "do not represent the onlydistribution methods which will satisfy the requirements of Section72(t)(2)(A)(iv) of the Code."33' Indeed, the IRS has issued private letter rulingsallowing particular taxpayers to use distribution methods other than those setforth in the IRS publication.332 However, this more technical guidance is notequally accessible to all taxpayers. Private letter rulings are expensive anddifficult to obtain, and therefore unlikely to be sought by or granted to theaverage taxpayer.333 More generally, both private letter rulings and IRS

326 No. 7022-11, T.C.M. 2014-21.327 See, e.g., supra text accompanying note 199.328 Cauble, supra note 41, at 427, 429, 451, 463 65; see also Bryan T. Camp, Theory and Practice in Tax

Administration, 29 VA. TAX REv. 227, 264 (2009).329 See infra Part III. C.

330 See supra text accompanying notes 217 22.

331 I.R.S. Priv. Ltr. Rul. 9008073 (Nov. 30, 1989).332 See supra note 223 and accompanying text.

333 See Rev. Proc. 2015-1, 2015-1 I.R.B. 1 (listing requirements for private letter rulings, as well as list of

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Notices are part of a panoply of technical guidance that the IRS issues, whichexperienced practitioners routinely access to advise sophisticated clients.334 Incontrast, less sophisticated taxpayers or advisors are unlikely to access (orknow about) such guidance.335 Less sophisticated taxpayers therefore access amuch smaller set of choices offered by the simplification in the IRSpublication, such as the simplification that taxpayers must use one of the threedistribution methods set forth in the IRS publication to avoid a penalty.336

Sophisticated taxpayers therefore enjoy the best of both worlds: the ability touse taxpayer-favorable IRS simplifications and the ability to reject pro-government IRS simplifications.

Sophisticated taxpayers, with greater awareness of the underlying tax law,may decide to reject both pro-government and pro-taxpayer IRSsimplifications. To the extent that such IRS simplifications exist in almostequal measure, the effect on taxpaying may simply net out. However, thispotential netting is unlikely. First, to the extent that pro-government IRSsimplifications are more frequent than pro-taxpayer IRS simplifications,sophisticated taxpayers rejecting all IRS simplifications would still putthemselves at an advantage relative to the majority of taxpayers who followIRS simplifications. Second, by recognizing the more complex rules,sophisticated taxpayers have the opportunity to reject pro-government IRSsimplifications and embrace pro-taxpayer IRS simplifications, whether or notthey actually do so. This choice is a valuable option, whether or notsophisticated taxpayers exercise it.337

Scholars have presented a number of scenarios under which the IRS shouldscreen taxpayers to determine whether they belong to different types, and toimpose different costs on each type. For instance, some scholars have arguedthat from an optimal tax theory perspective, the government should requirescreening of high- and low-ability taxpayers and impose higher costs on higherability taxpayers in order to redistribute most efficiently.338 Separately, Alex

334 See BORIS I. BITTKER & LAWRENCE LOKKEN, FEDERAL TAXATION OF INCOME, ESTATES AND GIFTS

110.6 (2015) (describing extensive IRS guidance in treatise).335 Cauble, supra note 41, at 423.336 See supra text accompanying note 220.337 Heather M. Field, Choosing Tax: Explicit Elections as an Element of Design in the Federal Income

Tax System, 47 HARV. J. ON LEGIS. 21, 31 32 (2010) (exploring the consequences of allowing choice in tax

planning).338 See, e.g., George A. Akerlof, The Economics of "Tagging" as Applied to the Optimal Income Tax,

Welfare Programs, and Manpower Planning, 68 AM. ECON. REV. 8 (1978); Kyle D. Logue & Joel Slemrod,Genes as Tags: The Tax Implications of Widely Available Genetic Information, 61 NAT'L TAX J. 843, 847 49

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Raskolnikov has argued that the government should screen between taxpayersbased on their dispositions toward tax compliance and impose different costson different taxpayers based on such dispositions.3 39 For instance, by screeningto distinguish between taxpayers who are inclined to comply with the taxsystem as long as the government offers helpful service and taxpayers who areinclined to comply only if the tax penalties are high enough, Raskolnikovsuggests that the government can target helpful taxpayer service toward theformer group and higher tax penalties toward the latter.340

However, the inadvertent screening created by IRS simplifications is theprecise opposite of the screening suggested by tax scholars. Sophisticatedtaxpayers are generally better off, as a group, relative to other taxpayers. Andyet, because of the enhanced choice not to follow pro-government IRSsimplifications, sophisticated taxpayers will tend to bear less of a burden fromsimplexity. In other words, simplexity likely imposes the lowest costs on thebest-off taxpayers. As for Raskolnikov's screening proposal in the taxcompliance context, the opacity of IRS simplifications means that it is notpossible to conclude that taxpayers are choosing to follow them or reject them,as the case may be, due to their underlying tax compliance dispositions.Rather, IRS simplifications likely impose greater burdens on less informedtaxpayers, an inequitable result that is not justified by any existing screeningtheory.

3. Inadequacy ofAdministrative Law to Police Threats

Can administrative law address the threats to tax transparency and theinequitable distribution of benefits and burdens that can result fromsimplexity? Administrative law, after all, creates a rulemaking frameworkdesigned to ensure that procedures apply to infuse agency pronouncementsregarding the law with public participation and, therefore, democraticlegitimacy. However, despite this promise, administrative law does notadequately resolve the adverse effects of simplexity.

The administrative law framework, established under the AdministrativeProcedure Act (APA), divides agency pronouncements into different

(2008); N. Gregory Mankiw & Matthew Weinzierl, The Optimal Taxation of Height: A Case Study of

Utilitarian Income Redistribution, 2 AM. ECON. J.: ECON. POLY 155 (2010); David A. Weisbach, Toward aNew Approach to Disability Law, 2009 U. CHI. LEGAL F. 47, 71 82.

339 Alex Raskolnikov, Revealing Choices: Using Taxpayer Choice to Target Tax Enforcement, 109

COLUM. L. REv. 689 (2009).340 Id.

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categories, which are designed to reflect different levels of influence over thelaw. Principally, the APA divides agency pronouncements into legislative rulesand nonlegislative rules.34' Legislative rules can create new legal rights andduties that bind the agency and the public.342 Accordingly, agencies must issuelegislative rules through demanding notice and comment procedures, which aredesigned to ensure meaningful public participation in the rulemaking processand judicial review of it.3 43 Nonlegislative rules, which are comprised ofinterpretive rules and policy statements, cannot create new legal rights andduties that are binding on the public.34 4 Instead, interpretive rules set forth theagency's own interpretation of existing law,3 45 and policy statements indicatehow the agency intends to exercise its discretion with respect to the law.34 6

Given their more limited functions, nonlegislative rules do not have to beissued through notice and comment procedures.347 Consequently, regulatedparties should not be compelled to comply with an agency's pronouncement ofnew legal rights and duties unless, among other things,348 the pronouncement isissued through notice and comment procedures.349

341 The APA does not apply the terms "legislative rules" and "nonlegislative rules." For discussion, see,

for example, Kristin E. Hickman, Unpacking the Force of Law, 66 VAND. L. REV. 465, 473 n.26 (2013);Frederic P. Lee, Legislative and Interpretive Regulations, 29 GEO. LJ. 1, 2 (1940). The APA also exemptsother rules, such as procedural rules, from notice and comment procedures. 5 U.S.C. § 553(b) (2012).

342 See, e.g., Chrysler Corp. v. Brown, 441 U.S. 281, 295 (1979) ("[P]roperly promulgated, substantiveagency regulations have the 'force and effect of law."); Prof ls & Patients for Customized Care v. Shalala, 56F.3d 592, 602 (5th Cir. 1995) ("'[L]egislative rules' are those which create law .. " (quoting Brown Expressv. United States, 607 F.2d 695, 700 (5th Cir. 1979))).

343 See 5 U.S.C. § 553 for the requirements set forth in the APA for issuance of legislative rules. Courtshave elaborated on these requirements significantly. See RICHARD J. PIERCE, JR., 1 ADMINISTRATIVE LAWTREATISE § 6. 1, at 407 (5th ed. 2010).

344 See, e.g., U.S. Dep't of Labor v. Kast Metals Corp., 744 F.2d 1145, 1152 (5th Cir. 1984)

("[Nionlegislative rules do not have the force of law .... ).345 See, e.g., Paralyzed Veterans of Am. v. West, 138 F.3d 1434, 1436 (Fed. Cir. 1998) ("'Interpretive

rules' ... clarify or explain existing law or regulations . '..."); Gen. Motors Corp. v. Ruckelshaus, 742 F.2d1561, 1565 (D.C. Cir. 1984), cert. denied, 471 U.S. 1074 (1985).

346 Pacific Gas & Elec. Co. v. Fed. Power Comm'n, 506 F.2d 33, 38 (D.C. Cir. 1974) ("A policystatement announces the agency's tentative intentions for the future."); U.S. DEP'T OF JUSTICE, ATTORNEYGENERAL'S MANUAL ON THE ADMINISTRATIVE PROCEDURE ACT 30 n. 3 (1947).

34' 5 U.S.C. § 553(b).348 Issuance of a legislative rule also must occur pursuant to a congressional grant of power. See, e.g.,

United States v. Storer Broad. Co., 351 U.S. 192 (1956). Moreover, in order to be upheld, a legislative rulemust withstand "hard look" review. Motor Vehicle Mfrs. Ass'n v. State Farm Auto. Ins., 463 U.S. 29 (1983).

349 See, e.g., Robert A. Anthony, Interpretive Rules, Policy Statements, Guidances, Manuals, and theLike Should Federal Agencies Use Them to Bind the Public?, 41 DUKE LJ. 1311, 1314, 1379 (1992);Michael Asimow, Public Participation in the Adoption of Interpretive Rules and Policy Statements, 75 MICH.L. REv. 520, 573 74 (1977) (asserting that notice and comment procedures "facilitate democraticparticipation").

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There are several obstacles to applying this rulemaking framework to IRSsimplifications. First, despite the theoretical clarity of the categories of rulesset forth above, such categories, as applied, have "been described ... as'tenuous,' 'fuzzy,' 'blurred,' and, perhaps most picturesquely, 'enshrouded inconsiderable smog."'350 These general difficulties apply with at least equalforce in the case of IRS simplifications.35

1

One could make plausible arguments that various IRS simplifications couldfit into any one of the three categories of rules. In terms of nonlegislative rules,one could plausibly argue that at least some IRS simplifications merelyrepresent the IRS's own interpretation of the statute, regulations, or judicialdoctrine,352 therefore comfortably fitting in the interpretive rules category.3' 3

Alternatively, to the extent that an IRS simplification goes beyond merelyinterpreting existing law, one could argue that it explains how the IRS intendsto exercise its enforcement discretion and, as such, it is merely a policystatement.354 However, relying on various judicial tests for distinguishingbetween nonlegislative and legislative rules, one could make a reasonableargument that at least some IRS simplifications are, in reality, procedurallyinvalid legislative rules, rather than either interpretive rules or policystatements. For instance, one could argue that IRS simplifications (such as the

350 Cmty. Nutrition Inst. v. Young, 818 F.2d 943, 946 (D.C. Cir. 1987) (citations omitted); see also Jacob

E. Gersen, Legislative Rules Revisited, 74 U. CHI L. REV. 1705, 1705 (2007) (referring to "[t]he distinctionbetween legislative rules and nonlegislative rules" as "one of the most confusing in administrative law").

351 Courts have obliquely addressed IRS simplifications, albeit in cases that were not focused onadministrative law. Adler v. Comm'r, 330 F.2d 91, 93 (9th Cir. 1964); Miller v. Comm'r, 114 T.C. 184, 195(2000) ("Administrative guidance contained in IRS publications is not binding on the Government .. ");Zimmerman v. Comm'r, 71 T.C. 367, 371 (1978) ("[A]uthoritative sources of Federal tax law are .. notin... informal [IRS] publications."). Other courts have held that "IRS publications, though 'aimed atexplaining existing tax law to taxpayers,' do not have the force of law." United States v. Josephberg, 562 F.3d478, 498 (2d Cir. 2009) (quoting Taylor v. United States, 57 Fed. Cl. 264, 266 (2003)).

352 See, e.g., Robert A. Anthony, A Taxonomy of Federal Agency Rules, 52 ADMIN. L. REv. 1045, 1046

(2000).353 The disclaimer at the beginning of IRS Publication 17 states that "[t]he explanations and examples in

this publication reflect the interpretation by the Internal Revenue Service (IRS) of Tax laws enacted byCongress, Treasury regulations, and Court decisions." INTERNAL REVENUE SERV., supra note 276. However,as discussed earlier, the disclaimer only appears on the cover of Publication 17, creating ambiguity aboutwhether or not it should carry any weight in characterizing other IRS publications. Moreover, many courtshave concluded that the label an agency uses certainly is not dispositive. See, e.g., Chamber of Commerce v.

OSHA, 636 F.2d 464, 468 (D.C. Cir. 1980) (concluding that an agency's label is "indicative but notdispositive').

354 See, e.g., Brock v. Cathedral Bluffs Shale Oil Co., 796 F.2d 533 (D.C. Cir. 1986) (holding that theSecretary of Labor's enforcement guidelines were mere policy statements). But see, e.g., Cmty. Nutrition Inst.,818 F.2d at 947 49 (holding that FDA aflatoxin action levels were procedurally invalid legislative rules).

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IRS's description of capitalization requirements)355 that appear to "effectivelyamend[] a prior legislative rule" (such as the capitalization regulation)3 5 6 areprocedurally invalid legislative rules.357 Relying on another line of authority,one could argue that IRS simplifications that transform broad standards intodetailed rules (such as the IRS's specification of required distribution methodsfor early IRA distributions)358 may be procedurally invalid legislative rules.359

Finally, as another theory, one could rely on a line of judicial authority toargue that if the IRS treats its descriptions in IRS publications as "for allpractical purposes 'binding,"' 360 then they could be procedurally invalidlegislative rules, even if the IRS does not actually claim that they are legallybinding.361 At bottom, exactly what IRS simplifications are under the APAdepends on which statement is being analyzed and what authority is beingapplied.362

Even if it were clear what IRS simplifications are under the APAframework, it is unlikely that the APA framework would actually be applied inpractice. Imagine, for instance, that IRS simplifications are clearly mere policystatements. Does this mean that taxpayers will not be compelled to complywith them? As a legal matter, the answer to this question should be yes.However, in order to answer yes to this question from a practical perspective,

355 See supra notes 158 59 and accompanying text.356 Seesupra notes 161 68.

357 Am. Mining Cong. v. Mine Safety & Health Admin., 995 F.2d 1106, 1112 (D.C. Cir. 1993).358 See supra notes 217 22 and accompanying text.

351 Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir. 2010); see also Hoctor v. USDA, 82F.3d 165, 171 (7th Cir. 1996). But see, e.g., Mora-Meraz v. Thomas, 601 F.3d 933, 942-43 (9th Cir. 2010)(holding that the Bureau of Prison's twelve-month rule for meeting a "drug abuse problem" was an interpretive

rule).360 See, e.g., Appalachian Power v. EPA, 208 F.3d 1015, 1021 (D.C. Cir. 2000). This analysis can easily

swallow up the policy statement category. For this reason, many commentators have critiqued the practicallybinding test. See, e.g., PIERCE, supra note 343, § 6.3, at 426.

36i The IRS, at times, treats its statements in IRS publications not only as interpretations or triggers forenforcement, but as the law itself In briefs, the IRS cites to IRS publications to support its argumentsregarding the law. See, e.g., Answering Brief for the Appellee at 24, Mingo v. Comm'r, 773 F.3d 629 (5th Cir.2014) (No. 13-60801), 2014 WL 1664220, at *24; Opening Brief for Respondent, Ostrow v. Comm'r, 122T.C. 378 (2004) (No. 6325-03), 2004 WL 1514961, at * 18 n.6; Brieffor Respondent at 23, Green Forest Mfg.,v. Comm'r, 85 T.C.M. (CCH) 1020 (2003) (No. 1596-01), 2002 WL 34358358, at *23. Further, the IRS hasargued that a taxpayer's failure to consult IRS publications, or the taxpayer taking a position in conflict withrelevant IRS publications, justifies imposition of an accuracy-based penalty. See, e.g., Brief for the Appellee,Au v. Comm'r, 482 Fed. App'x 289 (9th Cir. 2012) (No. 11-70270), 2011 WL 2679983, at *3, *15 16; Brieffor Appellee at 47 48, Tavano v. Comm'r, 986 F.2d 1389 (11th Cir. 1993) (No. 91-4078), 1992 WL 12135722at *47 48; Respondent's Brief in Answer at 13, 30, Bernard v. Comm'r, 104 T.C.M. (CCH) 136 (2012) (No.5787-10), 2012 WL 5494629.

362 Cf Anthony, supra note 349, at 1331.

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taxpayers who access IRS publications to complete their tax returns wouldhave to actually know that they are mere policy statements. This is unlikely tobe the case for the vast majority of taxpayers, who not only are unlikely toknow what IRS simplifications are from an APA perspective, but also that theyeven diverge from applicable tax law.

Some might argue that this compelled compliance as a practical mattersimply means that IRS simplifications are actually procedurally invalidlegislative rules. As a result of this procedural invalidity, this argument wouldgo, taxpayers could challenge the IRS's failure to use notice and commentprocedures. However, this argument suffers from the flawed assumption thatmost taxpayers will be alert to the administrative law categorizations. Asdiscussed earlier, while a small percentage of well-advised taxpayers may beprepared to make an APA challenge, the vast majority of taxpayers who accessIRS publications are unlikely to know what the rules are from anadministrative law perspective, much less challenge them as a result of apurported procedural invalidity.36 3

Even if a taxpayer challenged an IRS simplification in a tax controversy,the IRS still would not be compelled to revise the IRS simplification for othertaxpayers. The IRS could concede the issue as to the taxpayer in the caseprivately, without litigation.36 4 Even if the taxpayer successfully litigated thecase, the IRS could arguably preserve the IRS simplification unchanged on thegrounds that it represents the IRS's own view of the law.

In sum, most taxpayers will comply with IRS simplifications with noconsideration of what they are from an administrative law perspective. As aresult, the administrative law rulemaking framework offers an inadequatesolution to the threats of simplexity.365

363 A Westlaw search on July 7, 2015 for "IRS /p publication /p (APA or "administrative law")" revealed

no administrative law challenges to IRS publications. The search did reveal a handful of (rejected) appeals ofcriminal tax fraud convictions, in which the defendants claimed that the IRS's failure to subject various taxforms (such as Form 1040) to notice and comment meant that taxpayers had no duty to file tax returns. See,e.g., United States v. Hicks, 947 F.2d 1356, 1360 (9th Cir. 1991). That APA challenges to IRS forms bytaxpayers fighting criminal convictions are quite rare underscores the low likelihood of challenges to IRSpublications. In addition, it is difficult for taxpayers to bring a preenforcement challenge. See, e.g., Kristin E.Hickman, A Problem of Remedy: Responding to Treasury's (Lack ofi Compliance with AdministrativeProcedure Act Rulemaking Requirements, 76 GEO. WASH. L. REv. 1153 (2008).

364 See I.R.C. § 6103 (2012).365 One possibility might be to subject all IRS simplifications to notice and comment procedures. See, e.g.,

Anthony, supra note 349, at 1315 (suggesting expansive use of notice and comment procedures). We address,and reject, this possibility. See infra notes 387 93 and accompanying text.

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C. The Trade-Off

Fundamentally, simplexity poses a trade-off between representing the taxlaw accurately and presenting it in accessible and understandable terms. In thecontext of lawmaking, scholars have examined the optimal complexity, orprecision, of the law.36 6 They have argued that making the law more complexcan have benefits, in terms of allowing for more fine-grained distinctions,which may better capture underlying values.367 However, making the law morecomplex can also have costs, including making it less comprehensible andmore expensive to administer.368 Simplexity poses a similar trade-off. Greatersimplexity results in a less complex presentation of the law. This makes thelaw more understandable (and therefore more administrable), but at the cost ofa less accurate reflection of the underlying law. To the extent the underlyinglaw reflects congressional preferences, greater simplexity may result in lessadherence to the law's underlying preferences.

There is no universal answer to the question of how this trade-off should beresolved.369 Whether greater or less simplexity should exist depends both on:(1) how one values accuracy vs. understandability, and (2) whether the existinglevel of simplexity is too high or low, given the value placed on accuracy andunderstandability. Imagine, for instance, that, instead of explaining thepossibility of claiming itemized deductions, and explaining all suchdeductions, the IRS simply states, "[y]ou must take a standard deduction of $Xin the current taxable year." Most would agree that this IRS simplificationovervalues understandability, in that it ignores and obscures a whole slew ofavailable deductions. In this case, simplexity would be too high. On the otherhand, imagine that the IRS simply copies and pastes the entirety of thecapitalization rules into the relevant IRS publication. Most would agree thatthis act would undervalue understandability, in that it would be impossible fornearly all taxpayers to understand their taxpaying obligations. In this case,

366 See, e.g., Colin S. Diver, The Optimal Precision of Administrative Rules, 93 YALE LJ. 65 (1983);

Louis Kaplow, A Model of the Optimal Complexity ofLegal Rules, 11 JL. ECON. & ORG. 150 (1995); RichardA. Epstein, The Optimal Complexity of Legal Rules (Univ. of Chi. John M. Olin Program in Law and Econ.,Working Paper No. 210, 2004).

367 See, e.g., Kaplow, supra note 366, at 150 (positing that more complex rules are more closely tailored,thereby allowing for better control of behavior).

368 See, e.g., Diver, supra note 366, at 70 71 (discussing, among other things, the trade-off betweenaccessibility and congruence); Kaplow, supra note 366, at 151 (discussing compliance and enforcement costs

of complex rules).369 Cf Diver, supra note 366, at 76 ("The degree of precision appropriate to any particular rule depends

on a series of variables peculiar to the rule's author, enforcer, and addressee. As a consequence,generalizations about optimal rule precision are inherently suspect.").

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simplexity would be too low. Simplexity, therefore, is a characteristic ofdescriptions of the tax law, which can be too high or low in a givencircumstance.

Moreover, the benefits and costs of simplexity will vary in differentcontexts.370 For instance, the value of simplexity may be lower (and thepotential costs more pernicious) when describing provisions relevant only tosophisticated taxpayers, who are least in need of the seemingly simpleexplanations, and who will be most capable of manipulating the simplexity. Onthe other hand, the value of simplexity may be higher when addressingprovisions likely relevant to particularly unsophisticated taxpayers. Suchtaxpayers may have the most to gain from seemingly simple explanations andmay be least likely to manipulate the simplexity. The case for simplexity maybe highest still to the extent that the provisions are unlikely to be relevant tosophisticated taxpayers at all, thereby eliminating the concern that theunderstandability benefits to unsophisticated taxpayers will come with the costof differential abilities to manipulate. Other factors may also affect the value ofsimplexity. For instance, simplexity may be more problematic when Congressdeliberately intended the complexity of the underlying law to captureimportant values. On the other hand, simplexity may be more desirable whenthe complexity of the underlying law reflects poor drafting, rather than a desireto delineate subtle differences in tax treatment.

In short, recognizing the concept of simplexity and its pervasive presencein IRS Publications opens the door for evaluating whether a desirable amountof simplexity exists. But determining whether a desirable amount of simplexityexists must occur through a case-by-case analysis.

D. Potential Responses

As the prior discussion illustrates, simplexity creates a trade-off betweengreater understandability and less accuracy. This subpart offers approaches formaking simplexity more apparent. Doing so will make it easier to evaluatesimplexity in a given case, as well as preserve some of the benefits ofsimplexity while responding to its drawbacks.

370 Cf id. at 72 79 (fleshing out how various aspects of rule precision may matter more or less in different

contexts).

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1. Red-Flagging

A strategy for making simplexity more apparent and maintaining many ofthe benefits of simplexity while minimizing its threats is to require the IRS notonly to offer government-favorable IRS simplifications, but also to: (1) red-flag IRS simplifications explicitly (through footnotes, notations, interactiveonline links, appendices, or other means), (2) explain that they represent safe-harbor positions,37 1 and (3) briefly identify other reasonable interpretations ofthe tax law. The red-flagging approach has the benefits of allowing the IRS toexplain the tax law in plain language and reveal the agency's view of the taxlaw, or at least the view most favorable to the IRS. To the extent thatconservative taxpayers follow the IRS-favorable view, the IRS can stillmaximize revenue. Indeed, requiring the IRS to begin by routinely simplifyingin the government's favor may prevent giveaways to taxpayers in the form ofunwarranted pro-taxpayer IRS simplifications. Most importantly, this approachreduces opacity and may help level the playing field between different types oftaxpayers.

The red-flagging approach should go beyond mere placement of adisclaimer on each IRS publication regarding the possibility that thepublication contains IRS simplifications. Such disclaimers, even if placed onall IRS publications, would be inadequate. First, as cognitive bias research hasdemonstrated, individuals regularly ignore disclaimers and focus instead oneasily accessible explanations and examples.372 Drawing from empiricalresearch conducted in other areas, there are significant reasons to suspect thatgeneral disclaimers would not cause taxpayers to significantly discount thedescription of the tax law in all IRS publications.373 Moreover, even if ageneral disclaimer on each publication made taxpayers wary of the guidance inthe publications, the disclaimer would provide taxpayers with no roadmap

371 See Susan C. Morse, Safe Harbors, Sure Shipwrecks, 49 U.C. DAVIS L. REV. 1385 (2016).372 See, e.g., Nick Ellis, Word Meaning and the Links Between the Verbal System and Modalities of

Perception and Imagery or In Verbal Memory the Eyes See Vividly, but Ears Only Faintly Hear, FingersBarely Feel and the Nose Doesn't Know, in MENTAL IMAGES IN HUMAN COGNITION 313, 314 (Robert H.Logie & Michel Denis eds., 1991); Philip J. Mazzocco & Timothy C. Brock, Understanding the Role ofMental Imagery in Persuasion: A Cognitive Resources Model Analysis, in CREATING IMAGES AND THEPSYCHOLOGY OF MARKETING COMMUNICATION 65 (Lynn R. Kale & Chung-Hyun Kim eds., 2006)(describing the importance of the "vividness" of a story to the salience of images).

373 For behavioral analysis in other areas, see, for example, Yannis Bakos, Florencia Marotta-Wurgler &David R. Trossen, Does Anyone Read the Fine Print? Consumer Attention to Standard Form Contracts, 43 J.LEGAL STUD. 1 (2014); W. Kip Viscusi & Richard J. Zeckhauser, Hazard Communication: Warnings andRisk, in 545 ANNALS AM. ACAD. POL. & SOC. SCI. 106 (1996) (reporting inadequacy of prescription drugwarnings). For a general discussion, see BEN-SHAHAR & SCHNEIDER, supra note 81.

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regarding what guidance amounted to an IRS simplification and what thevarious, possible interpretations of the tax law actually are. As a result, generaldisclaimers would, at best, cause taxpayers to disregard IRS publicationsentirely, without providing any specific path forward for taxpayers who needguidance to fill out their tax returns. In contrast, a red-flagging system, withexplanations of the various possibilities in footnotes, notations, interactiveonline links, or appendices, could provide constructive, transparent guidancefor sophisticated and unsophisticated taxpayers alike.

The red-flagging approach may have additional benefits. Requiring the IRSto make different interpretations of the tax law apparent (and highlighting thepro-government IRS simplification) could create the opportunity to screen todistinguish between different taxpayers based on which version they choose.For instance, the IRS-or return preparation software developers374-- couldpresent taxpayers with the option of applying the safe harbor version of the lawrepresented by IRS simplifications, or a more pro-taxpayer version of the lawset forth in the alternatives presented. The IRS may then be able to requiretaxpayers to reveal which version of the law they are applying.375 Thisinformation would provide the IRS with valuable information regardingcompliance profiles, which is lost absent the explicit choice by taxpayers tofollow (or not to follow) simplifications.

The red-flagging approach is not without potential weaknesses. First, red-flagging would impose an additional requirement on a resource-constrainedIRS. However, imposing this cost on the IRS may be merited in light of theresulting increased transparency. Moreover, in drafting IRS simplificationscurrently, the agency is presumably already researching the law enough toreveal both IRS simplifications and the other possibilities. As a result, whilerevealing the information already in the IRS's possession would impose someadditional cost, this cost may not be insurmountable.

374 Tax return preparation software companies already charge different amounts for different productsbased on the level of tax return complexity. U.S. GoVT ACCOUNTABILITY OFFICE, GAO-09-297, TAXADMINISTRATION: MANY TAXPAYERS RELY ON TAX SOFTWARE AND IRS NEEDS TO ASSESS ASSOCIATED

RISKS 3 4 (2009), http://www.gao.gov/assets/290/286461.pdf One could imagine tax preparation softwarecompanies developing different products, which reflect the different versions of the law set forth by the IRS,and an accompanying insurance market developing based on the version of the law the taxpayer chooses,thereby resulting in different prices for the different versions.

375 For another proposed screening strategy, see, for example, Raskolnikov, supra note 339, at 718 19,737 38.

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Some might also object that the red-flagging approach would reduce thesimplicity, and therefore usability, of the IRS's guidance.376 However, red-flagging could be designed in a way that minimizes the increased burden itimposes. Online versions of IRS publications could have interactive links thatidentify IRS simplifications and other possibilities, where applicable. Printedversions could contain such information in separate supplements.

Red-flagging would create a new screening dynamic, but rather thanscreening based simply on how well-advised the taxpayer already is, the newred-flagging system would screen based on how much the taxpayer cares aboutreducing tax liability. Those taxpayers who seek to minimize tax liability canbear the additional costs of reading interactive links and supplements. Thosetaxpayers who wish to avoid added complexity can still do so by not clickingthe interactive links or reading the supplements.

Moreover, while it is easy to criticize red-flagging as increasingcomplexity, it is important to remember that the complexity and ambiguity ofthe underlying tax law is truly at fault. Maintenance of the status quo isunlikely to result in simplicity through reform of the actual underlying taxlaw.377 Red-flagging could provide the impetus needed to encouragepolicymakers to address the complexity and ambiguity of the tax law.378

An additional concern, however, is that red-flagging may inadvertentlyintroduce informational differences between taxpayers who can understand theinformation provided by a red-flagging system and those who cannot.37 9 AsJoe Bankman has pointed out, more than 20% of the population lacks theability to engage in tasks such as reading food labels or reading a simplestory.380 For such taxpayers, the potential benefits of the red-flagging systemwould be minimal. Red-flagging may thereby present a new, problematicscreening dimension.

However, this concern is not unique to the red-flagging system. Any taxsystem that offers tax planning opportunities is going to uniquely burden those

376 See, e.g., GRAETZ, supra note 72, at 82 (1997).377 Cf Austan Goolsbee, The TurboTax Revolution: Can Technology Solve Tax Complexity?, in THE

CRISIS IN TAX ADMINISTRATION 124, 128 (Henry J. Aaron & Joel Slemrod eds., 2004).378 For example, with mixed success, some countries have created initiatives to rewrite the underlying tax

law in plain language, rather than just creating a veneer of simplifications that overlays an unchanged set of

complex laws. JOINT COMM. ON TAXATION, supra note 71, at 115 17.379 This can be characterized as a horizontal equity problem, whereby reducing inequity between two sets

of taxpayers can often increase inequity relative to a third set.380 Bankman, supra note 31, at 1431.

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taxpayers who are least capable of understanding it. For example, researchregarding flexible spending accounts reveals that these tax savings vehicles aremore likely to be used by taxpayers with higher education and higher capacityto make complex assessments.381 Moreover, that some taxpayers will not havethe capacity to understand or use the red-flagging system cannot justifycontinuing to maintain the opacity of IRS simplifications.

Another reasonable objection to red-flagging is that it may create a roadmap for taxpayers to be aggressive. However, it is not clear that taxpayers willrespond to red-flagging by being more aggressive. To the extent that pro-taxpayer IRS simplifications currently exist, taxpayers may unknowingly befollowing them already. If the default is set to pro-government IRSsimplifications in the red-flagging system, many taxpayers may simply followthe default. The red-flagging system will make both the pro-governmentsimplifications and the other possibilities apparent. However, it is not clearwhether taxpayers will choose such other possibilities or follow the pro-government IRS simplifications. As scholars have noted, taxpayers complywith the tax law for all sorts of different reasons.382 Many taxpayers maysimply desire to adopt conservative tax positions and may appreciate thegovernment's presentation of these positions.383

Finally, even if a taxpayer would not ordinarily claim an aggressive taxposition, some may argue that red-flagging would highlight the complexity andambiguity of the tax law, leading some taxpayers to believe that others areexploiting it to claim aggressive tax positions.38 4 This belief may undermineconfidence in the tax system, thereby encouraging taxpayers to take aggressivepositions in anticipation of others doing so as well (a backlash effect).38 5 Thisconcern, however, is overstated. It is no secret that the tax system is complex.

381 Roger Feldman & Jennifer Schultz, Who Uses Flexible Spending Accounts: Effects of Employee

Characteristics and Employer Strategies, 39 IED. CARE 661, 661 (2001); Barton H. Hamilton & JamesMarton, Employee Choice of Flexible Spending Account Participation and Health Plan, 17 HEALTH ECON.793, 803-04 (2008).

382 See Michael Doran, Tax Penalties and Tax Compliance, 46 HARV. J. ON LEGIS. 111, 112 (2009);Raskolnikov, supra note 339, at 696 97; Joel Slemrod, Introduction to WHY PEOPLE PAY TAXES: TAXCOMPLIANCE AND ENFORCEMENT (Joel Slemrod ed., 1992).

383 See, e.g., Doran, supra note 382, at 137 38 (examining how convictions about duty, honesty, andcitizenship may compel compliance for certain taxpayers); Raskolnikov, supra note 339, at 719 (positing thatsome taxpayers want to take the conservative tax reporting position).

384 JOINT COMM. ON TAXATION, supra note 71, at 109.385 Id.; Edward J. McCaffery, The Holy Grail of Tax Simplification, 1990 WIS. L. REV. 1267, 1290

("[P]erception of hopelessly complex and inequitable tax laws .. leads some potentially honest taxpayers toattitudes of noncompliance.").

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Red-flagging simply may provide a more coherent road map of some of thecomplexity and ambiguity.

Alternatively, if red-flagging provides too much information regardingpotential, aggressive positions, an alternative would be to have the IRS simplyannotate its publications with links to all the sources of law that the IRS isrelying upon. These links would also create greater transparency and createless additional information for taxpayers to read. However, it would also serveas a less clear source of guidance regarding what, exactly, the alternativepotential tax positions are. Whether red-flagging or annotation is the preferableapproach depends on how easily one wants to allow less-sophisticatedtaxpayers to find alternative, more aggressive positions. If putting taxpayers onequal footing is a particularly important value, then red-flagging should bepreferred over annotation. However, if providing a greater measure oftransparency while making it less likely that taxpayers will take moreaggressive tax positions is more important, annotation should be preferred.

2. Review of-IRS Publications

The exclusive application of a red-flagging system or an annotation system,however, may not be enough to address the adverse effects of simplexity.Without oversight or review, the IRS may lack the proper incentives or evenability to create and maintain a sufficiently robust red-flagging system.386

Indeed, in some cases the IRS may not fully realize that there are otheravailable legal positions. In such cases, the IRS would not be able to offermeaningful red-flagging or annotation. A complementary reform would subjectthe IRS's process to outside review.

One possibility for review of IRS simplifications would be to require allIRS publications to undergo notice and comment procedures. Requiring noticeand comment procedures for all IRS publications, regardless of whether theyare actually interpretive rules or policy statements, could sidestep the difficultadministrative law classification questions discussed previously, and ensurethat the purported democratic legitimacy offered by notice and comment applyin any event.

386 The IRS's informal mechanisms for receiving feedback regarding its publications do not necessarily

produce meaningful comments. U.S. GEN. ACCOUNTING OFFICE, GAO/GGD-95-34, TAX ADMINISTRATION:IRS EFFORTS TO IMPROVE FORMS AND PUBLICATIONS 8 (1994). IRS publications are not subject to moreformal processes, such as OMB review. Id. at 3.

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However, this form of review should be rejected. Even within theadministrative law paradigm, many scholars question how much notice andcomment procedures really do ensure democratic legitimacy, and questionwhether the benefits are worth the costs.387 As applied to IRS Publications,notice and comment is a costly and likely ineffective means of ensuring thistransmission of information from the IRS to the public. However, it may beuseful to enlist the tax law bar and other tax professionals in a less formalprocess whereby they can create crowd-sourced (wiki-type) annotations on IRSPublications. The IRS can review such annotations for accuracy. But, theannotating process may alert the IRS to various sources of authority of which itwas not aware and help create more accurate simplifications.

As an alternative, a separate organization charged with monitoring the IRScould review the IRS's red-flagging of its own publications and seek to ensurethat sufficient information is transmitted to the public. A plethora oforganizations is charged with monitoring the IRS, including the IRS OversightBoard, the Treasury Inspector General for Tax Administration (TIGTA), theGovernment Accountability Office (GAO), and the Taxpayer AdvocateService.388 Of such organizations, either the TIGTA, or the GAO, or bothwould be well suited to review the red-flagging of IRS simplifications.389

Indeed, both the TIGTA and the GAO have reviewed the IRS's provision oftaxpayer assistance by telephone, the IRS's preparation of low-income taxreturns, and other taxpayer services to assess the quality of the IRS's

387 See, e.g., E. Donald Elliott, Re-Inventing Rulemakng, 41 DUKE L.J. 1490, 1492 93 (1992). Common

critiques include that the public generally has very little engagement with such procedures. See, e.g., CaryCoglianese, Citizen Participation in Rulemaking: Past, Present, and Future, 55 DUKE L.J. 943 (2006).Another oft-cited concern is that imposing the extensive procedures on an agency may simply discourage the

agency from issuing guidance altogether. See, e.g., David L. Franklin, Legislative Rules, Nonlegislative Rules,and the Perils of the Short Cut, 120 YALE L.J. 276, 284 (2010). As applied to IRS simplifications, requiringnotice and comment could reduce the volume of the IRS's publications, leaving taxpayers with less useful

guidance.388 See, e.g., NAT'L TAXPAYER ADVOCATE, supra note 9, at 23 24.389 In contrast, the Taxpayer Advocate Service and the IRS Oversight Board are unattractive possibilities.

The Taxpayer Advocate Service is charged principally with protecting taxpayers from the IRS. This charge isat least somewhat in conflict with objective analysis of IRS publications designed to ensure that both pro-government and pro-taxpayer IRS simplifications are identified. Samuel D. Brunson, Watching the Watchers:Preventing LR.S. Abuse of the Tax System, 14 FLA. TAX REV. 223, 252 53 (2013). The IRS Oversight Boardfaces severe resource issues, with six of its nine seats unfilled. Robert M. Tobias, Effective January 1, 2015,There Are Six Open Seats for IR Oversight Board Members, IRS OVERSIGHT BOARD, http://www.treasury.gov/IRSOB/about/Pages/default.aspx (last visited Oct. 2, 2016). Moreover, the IRS Oversight Board may notengage in tax policy decisions. I.R.C. § 7802(C)(ii) (2012).

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performance as well as to help the IRS develop a sound methodology toevaluate its own service.390

Review of IRS publications should be searching to be effective. In the early1990s, the GAO reviewed IRS publications and such review did not identifythe need for any substantive changes.39 1 However, the GAO methodology inthis review was quite limited, in that it reviewed only four IRS publications.392

Moreover, it is unclear whether the GAO was looking for IRSsimplifications.393 If the GAO were charged with identifying not only clearlyincorrect statements of the law, but also IRS simplifications, and ensuring thatsuch IRS simplifications are appropriately red-flagged-with reasonable,alternative possibilities clearly identified-then the GAO review may serve asa useful backstop to the IRS's own red-flagging.

3. Structural Reform

In some cases, red-flagging of IRS simplifications, backstopped by review,may not be a viable option. Aside from IRS publications, the IRS makessimplifying statements in real-time interactions with taxpayers in other fora.For instance, the IRS provides extensive advice to taxpayers over the telephoneand in Taxpayer Assistance Centers.3 94 While the IRS can, and does, prescribewhat types of questions it will answer in certain contexts3 95 and trains itsemployees to answer such questions,396 the IRS cannot constrain its employeesto stay within these boundaries in all cases, nor can the IRS provide a prepared

390 See, e.g., U.S. GOVT ACCOUNTABIITY OFFICE, GAO 10-225, 2009 TAX FING SEASON: IRS MET

MANY 2009 GOALS, BUT TELEPHONE ACCESS REMAINED Low, AND TAXPAYER SERVICE AND ENFORCEMENT

COULD BE IMPROVED (2009); U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-05-782, TAX ADMINISTRATION:IRS NEEDS BETTER STRATEGIC PLANNING AND EVALUATION OF TAXPAYER ASSISTANCE TRAINING (2005);

U.S. GEN. ACCOUNTING OFFICE, GAO-01-189, IRS TELEPHONE ASSISTANCE: QUALITY OF SERVICE MDIED IN

THE 2000 FILING SEASON AND BELOW IRS' LONG-TERM GOAL 2 (2001).391 U.S. GEN. ACCOUNTING OFFICE, GAO/GGD-93-72, TAx ADMINISTRATION: SELECTED IRS FORMS,

PUBLICATIONS, AND NOTICES COULD BE IMPROVED (1993).392 Id. at 1, 4, 16.393 Id. at 1, 16.394 Contact Your Local IRS Office, INTERNAL REVENUE SERV., https://www.irs.gov/help-resources/

contact-your-local-irs-office (last updated July 1, 2016); Let Us Help You, INTERNAL REVENUE SERV.,http://www irs gov/uac/telephone-assistance (last updated June 21, 2016).

395 TREASURY INSPECTOR GEN. FOR TAX ADMIN., REFERENCE NO. 2005-40-021, CUSTOMER SERVICE AT

THE TAXPAYER ASSISTANCE CENTERS IS IMPROVING BUT IS STILL NOT MEETING EXPECTATIONS 4 (2004).396 U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-05-782, TAX ADMINISTRATION: IRS NEEDS BETTER

STRATEGIC PLANNING AND EVALUATION OF TAXPAYER ASSISTANCE TRAINING 5 (2005).

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script that will apply to all fact patterns presented.397 For the same reasons thatit is impossible for the IRS to provide a prepared answer to every real-timequestion in advance, it is also impossible for the IRS to provide red flags forevery answer provided. In the absence of red flags, it would be problematic forthe employee to believe her role is either pro-government or pro-taxpayer.Such a view would tend to skew simplifications in one direction or the other.

As a result, employees who provide real-time advice to taxpayers may bestbe placed in a new independent taxpayer service organization, which has anidentity as a neutral provider of tax information. For the same reasons that theTaxpayer Advocate Service's independence from the IRS has been seen asessential to the institution's ability to advocate on behalf of taxpayers, 398

creating a neutral identity for taxpayer service employees who provide taxadvice to the public may be essential to ensure fair, reasonable advice in theabsence of any of the previously prescribed red flags.

Creating a separate unit of employees either within or apart from the IRS iscertain to impose additional costs, as a result of increasing the infrastructure ofthe agency, and the inevitable organizational costs of segregating certainemployees from others. To the extent that the IRS is able to red-flag mostambiguity that will arise in advance or limit IRS employees' answers to onlysituations that do not require simplifications, this last strategy should beavoided. But separation may be necessary in certain situations. It should serveas a limit on the types of questions that IRS employees, in the given structure,should answer. This strategy is likely to become more relevant if the IRSincreases interactivity with taxpayers during the tax return preparation processin the future, a potential development that is discussed below.

E. The Future of Tax Administration

The IRS's use of plain language to explain otherwise complex tax law isnot restricted to IRS publications, such as those discussed in this Article.Rather, IRS simplifications appear across the spectrum of taxpayer services.And if the IRS applies new innovations to aspects of tax administration overthe coming decades, simplexity is only likely to increase. In anticipation ofthese possible developments, this subpart briefly forecasts possible emergence

397 U.S. GEN. ACCOUNTING OFFICE, GAO-01-189, IRS TELEPHONE ASSISTANCE: QUALITY OF SERVICE

MIED IN THE 2000 FILING SEASON AND BELOW IRS' LONG-TERM GOAL 13 15 (2001); TREASURY INSPECTOR

GEN. FOR TAX ADMIN., supra note 395, at 2, 7.398 See Camp, supra note 47, at 96.

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of simplexity in some of the most prominent tax administration tax reformproposals: government-prepared tax returns, interactive tax return filing, andthird-party reporting.

Government-Prepared Tax Returns. In recent years, numerous governmentofficials and scholars have advocated for the adoption of government-preparedtax returns to promote increased tax compliance and alleviate individuals'filing costs.39 9 Under this approach, which has been implemented inCalifornia400 and outside the United States,40 1 the taxing authority wouldprepare portions of an individual's tax return by inserting information that ithas already received through third-party information reporting, such as salaryand interest payments and family status .402 Taxpayers would have the right tomake revisions to the information contained in the government-prepared taxreturn,403 though there is a high likelihood that many would confirm the IRS'spre-filled return rather than face an increased risk of audit.

In addition to reducing the return-filing burden on many individualtaxpayers, government-prepared tax returns would also present powerfulopportunities for the IRS to apply simplified versions of the tax law directly toindividuals' own personal tax circumstances. For instance, the IRS couldcreate a default that automatically designates a wage earner's receipt ofadditional income that is less than a certain amount, such as $600, as incomeearned from a hobby rather than a business activity. This default would serve asimilar role as the IRS's discussion of whether the taxpayer's "livelihood"depends on the income in the hobby determination rules of IRSPublication 535.44 As another example, the IRS could automatically allocate aset percentage of a restaurant's gross receipts, such as 10%, to the grossincome of all waiters who work at the restaurant.405 This default would not bebased on statutory or regulatory authority, but would communicate the IRS'spresumption regarding the restaurant's total tip income. By incorporating

399 See, e.g., Bankman, supra note 31; Goolsbee, supra note 31; Mock & Shurtz, supra note 31; Venty,

supra note 31.400 See STATE OF CAL. FRANCHISE TAX BD., READYRETURN PIor: TAX YEAR 2004 STUDY RESULTS

(2006), htp://www.ftb.ca.gov/readyReturn/TY04RRFinalReport.pdf.401 See, e.g., David Wiles, Why Swedes Are Okay with Paying Taxes, SWEDISH INST., https://sweden.se/

society/why-swedes-are-okay-with-paying-taxes/ (last updated Jan. 8, 2016).402 See STATE OF CAL. FRANCHISE TAXBD., supra note 400.403 See id.404 See supra notes 231 36 and accompanying text.405 Current law contains a similar feature, calculated at 8% of total gross income. I.R.C. § 6053(c) (2012);

Treas. Reg. § 31.6053-3(d) (2012).

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defaults and presumptions in the government-prepared tax return, the IRScould signal legal outcomes to taxpayers, even if these outcomes are notnecessarily required by the applicable tax law.

Interactive Tax Return Filing. Several scholars have recommended that theIRS create interactive online mechanisms to assist taxpayers with their taxreturn filing obligations and provide them with tailored guidance.40 6 Currently,taxpayers who consult IRS publications and tax return forms receive uniformguidance even though their personal circumstances differ. As Joseph Bankman,Clifford Nass, and Joel Slemrod have noted, once taxpayers identify as part ofa particular group, such as taxpayers who must file IRS Form 1040 withSchedule A, "each member receives the identical form with the identicalquestions."407 In response, these scholars argue that the IRS should incorporate"conversational agents" into e-filing software, which ask specific questionsbased on the taxpayer's type of employment, answers to prior questions, andother factors.408 They suggest that the conversational agent could also assumethe role of auditor by adjusting the questions to uncover potential taxnoncompliance.40 9 Likewise, in response to the length and density of currentIRS publications, Kathleen DeLaney Thomas suggests that the IRS couldcreate user-friendly websites that provide thematically-linked information on aspecific topic, such as tax obligations related to household employees.410

Each of these suggestions would reduce procedural complexity associatedwith tax return filing, but would also provide the IRS with enhancedopportunities to shape the tax law through simplexity. The IRS already directsits taxpayer assistance employees to answer all "in scope" questions fromtaxpayers by restating text from particular IRS publications.411 The proposalsdescribed above would amplify IRS simplifications through moretechnologically advanced means. For example, under Thomas's approach, theIRS could use the household employee website to provide taxpayers with itsown interpretation of otherwise ambiguous legal issues, such as whether anindividual who provides childcare services should be treated as an employeefor tax purposes.412 Similarly, under the Bankman, Nass, and Slemrod

406 See, e.g., Bankman, Nass & Slemrod, supra note 32; Mock & Shurtz, supra note 31; Thomas, supra

note 32.407 Bankman, Nass & Slemrod, supra note 32, at 17.

408 Id. at I8.409 id.

410 See Thomas, supra note 32.

411 TREASURY INSPECTOR GEN. FOR TAX ADMIN., supra note 3 95.

412 See Thomas, supra note 32, at 37 40.

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proposal, the conversational agent could ask taxpayers questions about itemsthat may not necessarily be subject to tax, such as certain employerreimbursements, in a way that nevertheless leads the taxpayer to include theamounts in income out of caution.413

Third-Party Reporting. The government has increasingly instituted third-party information reporting requirements as a means of assessing taxliability. 4 14 In recent years, and often as a result of legislation, the IRS hasexpanded information-reporting requirements to apply to topics as diverse asoffshore bank accounts,415 health insurance,416 basis in securities,417 andtransactions that involve virtual currencies.418 Studies of individual taxreporting have found consistently that third-party information reportingcorrelates with high levels of tax compliance.419 As technological progresscontinues to enhance the ability of third parties, such as banks or individualswith children, to comply with information reporting requirements, thegovernment is likely to increase its use of this tax enforcement device.

While third-party information reporting is an important feature of moderntax administration, it also provides an outlet for IRS simplifications. Third-party information reporting requirements enable the IRS to implicitly advisetaxpayers that they should not engage in specific transactions. For instance, the"reportable transaction" rules, which require taxpayers and their advisors tofile information reports with the IRS whenever a taxpayer engages in certaintransactions, can signal to taxpayers that they should not engage in thesetransactions, even though they are not necessarily inconsistent with applicabletax law.420 Further, the IRS could use information reporting instructions tothird parties to add administrative gloss to the underlying tax law. Forexample, by providing non-U.S. banks with new indicia of customers whoshould be subject to information reporting to the U.S., the IRS could create

413 Bankman, Nass & Slemrod, supra note 32, at 18.414 For list of current information-reporting requirements, see supra note 33.415 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, CATALOG NO. 59612Q, 2015 INSTRUCTIONS FOR

FORM 8966 (2015).416 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, FORM 1095-C, EMPLOYER-PROVIDED HEALTH

INSURANCE OFFER AND COVERAGE (2015).417 INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, FORM 8949, SALES AND OTHER DISPOSITIONS OF

CAPITAL ASSETS (2015).4i8 I.R.S. Notice 2014-21, 2014-16 I.R.B. 938.419 See INTERNAL REVENUE SERV., TAX GAP ESTIMATES FOR TAx YEARS 2008 2010, at 2 (2016),

https://www.irs.gov/PUP/newsrooni/tax22gap%/2Oestimates/2Ofoir2200 /20through222010.pdf.420 See Treas. Reg. §§ 1.6011-4(a), (b) (2016); see also Joshua D. Blank, Overcoming Overdisclosure:

Toward Tax Shelter Detection, 56 UCLA L. REV. 1629 (2009).

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information-reporting rules that extend beyond the requirements of applicabletax law.421 An underexplored feature of the information reporting approach,consequently, is how it can serve as an enhanced platform for IRSsimplifications.

Each of these examples illustrates how the IRS could extend its currentapproaches to simplifying the tax law to new tax enforcement and collectiontechniques. Simplexity in tax administration will likely only grow as the IRSincreases its interaction with taxpayers through a variety of new initiatives andtechnological advances. The potential growth of simplexity underscores theneed for policymakers to consider the strategies of red-flagging, oversight, and,if necessary, structural reform,422 when considering whether and how toimplement these tax administration proposals in the future.

CONCLUSION

This Article has explored a previously unexamined consequence ofmandating that the government communicate with the public using plainlanguage that is easy to understand. Plain language advocates assert thatinitiatives such as the Plain Writing Act and the IRS's duty to explain will leadto "simplicity rather than obfuscation. " 423 In contrast, we have argued that,rather than achieving simplicity, the government's use of clear and simpleterms to describe complex legal rules and regulations often yields simplexity.By examining this effect of the use of plain language, this Article has madefour primary contributions.

First, this Article has introduced the concept of simplexity to the legalliterature. As we have defined it, simplexity occurs when the governmentpresents clear and simple explanations of the law without highlighting itsunderlying complexity or reducing this complexity through formal legalchanges. Conversely, simplicity-a perennial goal of policymakers andscholars-results when policymakers reform the law by eliminating specificcomplex provisions or procedures through the enactment of statutory changesor issuance of regulations.

Second, this Article has shown that in its numerous taxpayer publications,the IRS frequently uses plain language to transform complex, often ambiguous

421 For current law, see Treas. Reg. §§ 1.1471-3(b), (c) (2015).422 See supra Part III.D.423 SUNSTEIN, supra note 13, at 16.

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tax law into seemingly simple statements that: (1) present contested tax law asclear tax rules, (2) add administrative gloss to the tax law, and (3) fail to fullyexplain the tax law, including possible exceptions. While IRS simplificationsoften result in restatements of the tax law that benefit the government, at othertimes they appear as recharacterizations that benefit taxpayers.

Third, this Article has considered the normative implications of simplexity.Simplexity offers a number of tax administration benefits, such as making thetax law understandable, revealing IRS interpretations of the tax law, and evenbolstering the IRS's ability to collect tax revenue. At the same time, we haveargued that simplexity can also promote opacity rather than transparencyregarding the tax law and lead to inequitable benefits and burdens amongdifferent taxpayers who act on IRS simplifications. Further, administrative lawis unlikely to address each of these threats. Evaluating whether the level ofsimplexity is too high or low requires balancing the competing values ofunderstandability and accuracy in a given context.

Last, rather than advocating for the rejection of plain language ingovernment communications, we have presented several strategies formaximizing the tax administration and compliance benefits of simplexity whileminimizing its potential threats. While these possibilities are not exhaustive,we have outlined three potential approaches: red-flagging or annotating IRSsimplifications, outside review of IRS simplifications, and accompanying red-flagging or annotating with structural reform of taxpayer service functions ofthe IRS.

While we have argued that simplexity occurs in IRS communications withtaxpayers, and is likely to increase in the future, this concept has broadapplication. Administrative agencies throughout the federal government arenow required to use plain language in their official communications with thepublic.4 24 When agencies meet this mandate by offering simple explanationsfor otherwise complex law, they too exhibit simplexity. As a result, theanalysis and prescriptions presented in this Article should have importantimplications not only for government officials and scholars specializing in taxlaw, but for those in other legal areas as well.

424 Plain Writing Act of 2010, Pub. L. No. 111-274, 124 Stat. 2861 (2010); SUNSTEIN, supra note 13.

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